OxfordAQA International A Level Economics
OxfordAQA International A Level Economics 3.3.1 The Objectives of Individuals and Firms Exam Questions
Free OxfordAQA International A Level Economics revision for 3.3.1 The Objectives of Individuals and Firms: what you need to know, common mistakes and exam-style questions with answers. Covers rational decision making, utility, behavioural economics, bounded rationality, biases, altruism, fairness, objectives of firms and the growth of firms.
Practise 3.3.1 The Objectives of Individuals and Firms with past papers
Once you have learnt this topic, find the 3.3.1 The Objectives of Individuals and Firms questions in real OxfordAQA International A Level Economics past papers and mark them with the mark scheme. Doing lots of real questions is the quickest way to learn how examiners ask about each idea.
About OxfordAQA International A Level Economics 3.3.1 The Objectives of Individuals and Firms
The objectives of individuals and firms opens Unit 3, The economics of business behaviour and the distribution of income, on the OxfordAQA International A2 Economics course. You compare the traditional view of individuals as rational utility maximisers with behavioural economics, including bounded rationality and bounded self-control, common biases and the importance of altruism and fairness. You then look at the objectives firms pursue and how and why firms grow, including mergers and their types. This topic leads into the cost, revenue and market structure topics that follow. Examiners often ask you to explain a named bias using an example, apply behavioural ideas to policy and analyse why firms integrate.
What you need to know
- 3.3.1.1 Rational decision making Traditional theory assumes consumers aim to maximise utility. Diminishing marginal utility explains why demand curves slope down. Imperfect and asymmetric information can stop people making the best choices.
- 3.3.1.2 Behavioural influences The specification lists bounded rationality and bounded self-control; biases including computational problems, inertia, rules of thumb, anchoring and social norms; and the importance of altruism and perceptions of fairness.
- Using behavioural ideas Choice architecture and nudges, such as default options, can steer behaviour without banning choices. These can support policy on saving, health or energy use.
- 3.3.1.3 Objectives of firms Firms may aim to maximise profit, revenue or sales, pursue growth or survival, or satisfice. The principal-agent problem arises when managers' aims differ from shareholders'.
- 3.3.1.4 Growth of firms Firms grow organically or through mergers and takeovers. Horizontal integration is with a firm at the same stage; vertical integration (forward or backward) is with a firm at another stage; conglomerate integration is with an unrelated firm.
Common mistakes in 3.3.1 The Objectives of Individuals and Firms
- Describing bounded rationality as people being irrational. It means people make satisfactory choices because of limited information, time and ability to process it.
- Naming a bias without linking it to an example of a decision. Show how the bias changes the choice made.
- Mixing up forward and backward vertical integration. Forward is towards the consumer; backward is towards the supplier.
- Assuming all growth benefits consumers. Mergers can increase market power and lead to higher prices.
- Stating that firms maximise revenue where MC = MR. Revenue is maximised where MR = 0.
Try three 3.3.1 The Objectives of Individuals and Firms exam-style questions
1. Explain what is meant by anchoring, with an example. (3 marks)
Show the mark scheme answer
Anchoring is a bias where people rely too heavily on the first piece of information they receive when making a decision; e.g. a shop shows a high original price next to a sale price; consumers judge the sale price as a bargain relative to the anchor.
2. Explain one reason why a firm might integrate backwards. (3 marks)
Show the mark scheme answer
Backward vertical integration means taking over a supplier; it secures the supply and quality of inputs; and removes the supplier's profit margin, reducing costs.
3. Explain how a government might use a default option to increase saving for retirement. (4 marks)
Show the mark scheme answer
Workers could be automatically enrolled in a pension scheme unless they choose to opt out; inertia means many will not opt out; this overcomes bounded self-control and present bias; so saving increases while freedom of choice is kept.
3.3.1 The Objectives of Individuals and Firms FAQs
What does OxfordAQA International A Level Economics 3.3.1 The Objectives of Individuals and Firms cover?
It covers rational and behavioural decision making by individuals, the objectives of firms, and how and why firms grow.
Which unit is 3.3.1 The Objectives of Individuals and Firms examined in?
It is examined in Unit 3 (EC03), The economics of business behaviour and the distribution of income, an A2 unit with multiple choice, short answer, data response and essay sections.
Which behavioural terms do I need to learn?
Learn bounded rationality, bounded self-control, computational problems, inertia, rules of thumb, anchoring, social norms, altruism and fairness, with a real-world example for each.
