Question 1 Part A (200 word limit) Explain the main differences between the traditional utility-based theory of consumer behavior and the behavioral economics approach to understanding consumer decision making. Are the two approaches mutually exclusive (no explanation needed)?

The written response portion of this exam is comprised five two-part questions. You are required to select any three of the questions and answer both parts of the questions you selected to earn full credit. You may not mix and match question parts. Each question is distinct; do not cite or reference your answer in one question as part of your response as another. There are word limits for each part of the questions as indicated below. There is a penalty for exceeding the word limit.

The clarity of your responses is a factor in your grade. Your answers must be in our own words. Answers such as “As discussed in Karlan and Mordoch…” are not acceptable.  I want to see your own thinking and citing someone else is showing me their thinking, not yours.  You are not to rely on any sources outside of the text and course materials (readings/videos embedded in Canvas) when drafting your responses in your own words. Plagiarism will be strictly enforced and the penalty will be severe.

There is no time limit, but this exam was designed to be completed in one sitting and take less than two hours. You may start and stop working on your answers as you wish. You may want to work in a separate Word/Google Doc and then just upload the file or paste your answers over when you are ready to submit the entire exam.  Please do not submit your exam as a pdf file. 

Question 1

Part A (200 word limit)

Explain the main differences between the traditional utility-based theory of consumer behavior and the behavioral economics approach to understanding consumer decision making. Are the two approaches mutually exclusive (no explanation needed)?

Part B (400 word limit)

Select either the traditional utility-based theory or the behavioral economics approach and provide an example of an effective public policy that is in-line or relies on the tenets of the chosen school of thought. You may not select an example from the textbook (Karlan and Morduch). Briefly summarize the policy and explain the connection between the policy’s effectiveness and the tenets of the chosen school of thought.

Question 3

Part A (300 word limit)

Consider the personal income tax (remember, capital gains fall under the personal income tax) .  First, clearly state whether the personal income tax is regressive, progressive, proportional, or a combination, Second,  clearly explain your answer. Notice that this question is asking specifically about the U.S. federal personal income tax system.

Part B (300 word limit)

Consider the payroll tax.  First, clearly state whether the payroll tax is regressive, progressive, proportional, or a combination, Second,  clearly explain your answer. Notice that this question is asking specifically about the U.S. federal payroll tax .

Question 4

Part A (200 word limit)

Provide an example of an externality and why your choice is, in fact, an externality. That is, why did the market fail to achieve the socially optimal outcome? Be sure to indicate whether your example is of a positive or negative externality, and, again, explain why. You may not select an example from the textbook (Karlan and Morduch).

Part B (300 word limit)

Propose a public policy to address this market failure. Explain how your proposal would correct the market failure. You may find it helpful to use hypothetical figures to explain your answer. Are there any important considerations or alternative policies decision makers should be aware of before adopting your proposal?

 

 

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