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Question 4 (17 points) (max 450 words) _ a) Review the fundamental microeconomic assumptions on the consumers' behaViour within the neoclassical model. What are the
Question 4 (17 points) (max 450 words) _ a) Review the fundamental microeconomic assumptions on the consumers' behaViour within the neoclassical model. What are the main strengths and the main limitations of those assumptions? Discuss with theoretical and applied evidence. (8.5 Marks) b) 'Raising the incomes of all does not increase the happiness of all '. Can this statement be interpreted as a criticism of the fundamental axioms of the neoclasSIcal consumer theory? Provide a reason for your answer, and explain the role played by the 'comparison income'. (8.5 Marks) Question 5 (17 points) (max 450 words) 'Unless the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in their common interest, rational, self-interested individuals will not act to achieve their common or group interest'. a) Comment on the statement and describe the economic theory the statement refers to. (8.5 Marks) b) What is the evidence in favour of the 'zero contn'bution thesis' and what is the evidence contradicting it? Use four examples from the literature. (8.5 Marks) Question 6 (16 points) (max 450 words) 'The people with whom we interact on a regular basis, and even some with whom we interact only sporadically, inuence our beliefs, decisions and behaviours'. a) Explain this statement by using the related theory and by providing at least 4 economic examples. (7 Marks) b) Could networks be thought of as a solution to market failure? Or are networks the cause of market failures? Explain your answer by using the relevant theory on networks. (9 Marks)
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