1.BEHAVIOURIAL ECONOMICS AND ASYMMETRIC INFORMATION [15 marks]

Making a good decision is important. Elaborate on the following two mistakes people often tend to make: (i) ignoring non-monetary opportunity costs; and (ii) overvaluing current utility and undervaluing future utility. Feel free to use your own personal examples of irrational decision-marking to support your answer. [6 marks]

What are externalities? Using real-world examples explain the difference between consumption and production externalities and between positive and negative externalities. Choose one (1) specific type of externality and give a sound reason for government intervention to solve the market failure.