Exam 10: Consumer Choice and Behavioral Economics

Table 10-3 -Refer to Table 10-3. The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda. The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1. Use this information to select the correct statement.

Total utility is constant along a given indifference curve.

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card, even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Terence has $50 per week to spend on Subway sandwiches and milkshakes. The price of a Subway sandwich is $5 and the price of a milkshake is $4. He buys 6 sandwiches and 5 milkshakes. The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24. Which of the following is true?

Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

Explain the concept of network externalities.

Grant has $200 to spend each month on restaurant meals and jazz performances at his neighborhood jazz club. The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10. Grant is maximizing his utility by consuming 6 restaurant meals and attending 8 jazz performances. Suppose Grant still has $200 to spend, but the price of restaurant meal rises to $25, while the price of jazz performance ticket drops to $8. Can it be determined if Grant is better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.

Avner is maximizing total utility by buying sports magazines and protein supplements. For him to buy more sports magazines

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are evidence of

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls, then

Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education. In making his decision, the $200,000 he spent on his education

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Table 10-2 Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. -Refer to Table 10-2. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximizing bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

Giffen goods

If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance, we can conclude that

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

The demand curve for a luxury good is upward sloping.