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ECON 7110:
CONSUMER AND FIRM BEHAVIOUR
Problem Set 1 (15%) Due: 16:00. Monday, August 30th, 2021
Questions
1) Imagine your laptop computer is broken and you want to buy a brand new one.
a) Search online and make a (random) list with ten laptop models. (0.5 marks)
b) What are the attributes of a laptop computer that are most important to you? Describe your utility
function
๐ข(๐, ๐, ๐, ๐, ๐)
where a, b, c, d are different attributes of the laptop and p is the price.
(1.5 marks)
c) Reduce the number of your options from ten to three alternatives using the elimination by aspects
heuristic. Describe your process. What are the three laptop models left in your choice set? (1 mark)
d) For the remaining choice set with three laptop models, show whether your preferences are
i. complete (1 mark)
ii. transitive (1 mark)
e) Describe (in a few sentences) how your actual choice process would look if you had to buy a new
laptop. Do you rely mainly on rational utility maximization or simple heuristics?
(1 mark)
2) Imagine you are the prime minister of Australia managing the Covid-19 vaccine rollout.
a. On the 19th of August, 2021, what was the share of the Australian population fully
vaccinated against COVID-19?
Use data from ourworldindata.org to answer. (0.5 marks)
b. Choose an OECD country (apart from Australia). Imagine that Australians use the share
of the population fully vaccinated against COVID-19 in your chosen OECD country as
their reference point (๐
๐). Suppose the difference between Australiansโ reference point
(๐
๐) and the share of the Australian population fully vaccinated against COVID-19 (AU)
determine Australiansโ value ๐ฃ(๐ฅ), where (๐ฅ = AU – RP).
Assume that the Australian publicโs value function is
๐ฃ(๐ฅ) = 300๐ฅ ๐๐๐ ๐๐๐ ๐ ๐๐ (๐ฅ < 0)
๐๐๐
๐ฃ(๐ฅ) = 100๐ฅ ๐๐๐ ๐๐๐๐๐ (๐ฅ โฅ 0)
2
What was Australiansโ value on the 1st of June 2021? (1 mark)
c. What was Australiansโ value on the 14
th of August 2021? (1 mark)
d. Comparing your citizensโ values for c) and d) above, would you say you did well in
progressing the vaccine rollout since June? (0.5 marks)
3) Suppose you want to find out whether lockdowns to fight Covid-19 works, i.e., lockdowns negatively
affect the number of confirmed Covid-19 cases.
Imagine that you have data on the strictness of lockdowns and the number of confirmed Covid-19
cases for every suburb in Australia. The data shows that strict lockdowns are positively associated
with confirmed Covid-19 cases (i.e., the tougher the lockdowns are, the higher is the number of
confirmed Covid-19 cases in that suburb).
a) Explain why the positive association in your data does not necessarily mean lockdowns increase
the number of confirmed Covid-19 cases.
(2 marks)
b) What other ways can you establish causality between the strictness of lockdowns and the number
of confirmed Covid-19 cases? Give an example for any two of the four empirical tools presented in
the lectures. Discuss potential limitations/challenges of each method. (4 marks)
