Unit - 3. - Demand - Lecture 2 (HL)

Session 4
(HL)
09.30.2022
Irina Kovaleva
1. What would happen to the demand for
Bicycles if there were а large increase in
the tax on electric scooters?
1. Bicycles and
scooters are D for scooters D for
substitutes. bicycles
2. T↑ for scooters
means P↑ (Q↓).
3. People will D
more bicycles
D shifts →
foreign holidays if there were an
increase in incomes?
D for holidays
1. Foreign holidays -
luxury good.
2. As income ↑,
people spend more
time abroad (Q↑).
3. D shifts →
video games if there were а significant
fall in the price of games consoles?
1. Goods are D for game D for holidays

compliments. consoles
2. Game
consoles P↓
would Q↑.
3. Video games
D shifts→
cars if there were а significant increase
in the level of income tax?
1. Cars are normal D for cars
goods.
2. T↑ makes people
poorer.
3. They buy less of cars
(Q↓).
4. D shifts ←
ice creams if the price of ice creams
were to go up?
1. If P↑ D for ice-cream
2. Q↓
(Law of Demand)
3. There is a
movement along
the demand curve
6. What would happen to the demand for а
certain brand of bottled water if there were
an article about the lack of purity of the
source of the water in а national newspaper?
D for this brand D for other

1) People will water brands
switch to
substitutes
(other brands).
2) D shifts ←
carrots if there were an increase in the
size of the population?
D for carrots
1) D shifts →
As we need more carrots
Income effect and Substitution effect
Key assumptions
1. People act with

full information.
2. People know their

preferences.
3. People choose the

best available
option.
1. Richard Тhaler -
Nobel Prize, 2017.
2. Consumers are
"rational
maximizers“ of
utility.
3. There is no such
person as homo
economicus.
4. We are all homo
sapiens!
Cognitive biases that affect decisions
1.Availability bias
2.Anchoring bias
3.Framing bias
4.Нerd behavior
5.Status Quo bias
6.Loss aversion bias
7.Hyperbolic
discounting
1. Availability bias
(предвзятость доступности)
Tendency to think
that whatever is
easiest for us to
recall should
provide the best
context for future
predictions
2. Anchoring bias
(эффект привязки)
Rely too
heavily on the
first piece of
information we
are given about
a topic
3. Framing bias
(эффект фрейминга)
Manner in which
data is presented can
affect decision
making
4. Social Conformity/Нerd behavior
(cоциальное соответствие/стадное поведение)
The social pressure

to conform means
that individuals
want to be
accepted – and
this means
behaving in the
same way as
others
5. Status Quo/Inertia bias
(возврат к исходному состоянию)
When people
prefer things to
stay the same
by doing
nothing
6. Loss aversion bias
(неприятие потерь)
Real or
potential loss
is perceived by
individuals as
psychologically
or emotionally
more severe
than an
equivalent
gain.
7. Hyperbolic discounting
Prefer smaller
short-term
rewards over
larger later
rewards
Exercise 3.7
ATL Thinking and Communication
This picture was taken in а local supermarket.
How has the company taken advantage of

cognitive biases to try to get consumers to
buy the product?
Research Black Friday and Singles’ dау.
How do retailers take advantage of any of the

cognitive biases on these days?
How саn behavioural economics bе used to
help consumers make better choices?
Choice architecture is
the theory that the
decisions that we make
are heavily influenced
bу the ways in which
the choices are
presented to us
1. Impulse buy
When you shop in a supermarket, you will find all kinds of products
right at the cash desk that encourage you to "impulse buy".
They are not there by accident!
The "choice architect" has placed
them there because it is assumed
that while you are waiting there,
you will buy those products.
This is especially the case if you are
with a small child who will have a
temper tantrum (истерика) if you
don't buy them!
2. Default choice (выбор по умолчанию)
It is about what you get if you
do nothing.
Google is the default search
engine on many browsers - it
does not have to be selected,
it opens automatically.
Or you may make the same
choice because it is а habit. If
you always get а caffe latte
when you go to the coffee
shop, then it becomes your
default option.
2. Default choice
• Although the default options do not always result in а good

outcome, they are very popular for many reasons.
1. Consumers may not have the time or the resources to
research altematives,
2. they may lack the cognitive skills to understand the
alternatives,
3. they may lack the courage (храбрость) to make changes,
4. they are comfortable with what they normally choose and
they generally like the easier options!
3. Opt-in/opt-out approach
There are 2 ways to increase the number of organs
available.
1. Opt-in approach. It is the responsibility of people to sign
up to the organ donation register. Hospitals will use their
organs after death.
2. Opt-out system, organs will automatically be donated
unless people make а specific request before death that
their organs should not be taken.
Changing the option is an example of using choice
architecture
4. Mandated choice
• The way that the government can
increase the number of donated organs
is to require people to tick а box to say
whether or not they are willing to be
donors when they renew their driver's
license.
• Although many people would like to be
organ donors, many do not make the
effort to indicate this choice.
• When the choice architects force
people to make the choice, the
number of organ donations increases
substantially.
How can people be encouraged to make
better choices?
• Nudge theory (теория подталкивания) was developed by behavioural
economist Richard Thaler.
• The theory suggests that the choice architecture offered to people can be
carefully designed to gently encourage (nudge) the people to voluntarily
choose the option which is better for them.
• Behavioural economics in general, and nudge theory in particular, became

much more well-known and accessible to the general population following
the publication of Richard Thaler and Cass Sunstein' s book Nudge:
“Improving decisions about health, wealth and happiness”.
Nudge theory
The key to nudge theory is that consumers maintain their
consumer sovereignty (their right to choose) but are
encouraged to make better decisions.
Example - food in а school cafeteria.
If healthy foods are placed, students will consume more
of them.
The key thing is that the students are not forced to choose
the healthy option, but they do it themselves.
The argument is that students are more likely to pick up
healthy habits if they are making the choices themselves.

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Session 4

1. Goods are D for game D for holidays

D for this brand D for other

1. People act with

2. People know their

3. People choose the

The social pressure

How has the company taken advantage of

Research Black Friday and Singles’ dау.

How do retailers take advantage of any of the

• Although the default options do not always result in а good

• Behavioural economics in general, and nudge theory in particular, became

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