Exam 10: Consumer Choice and Behavioral Economics

Figure 10-7 The above panels show various combinations of indifference curves and budget constraints for two products: Popcorn and Candy. -Refer to Figure 10-7. Which diagram demonstrates an increase in total utility following a decrease in the price of popcorn?

Some online penny auctions charge a fee, such as $1, for every bid placed. Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Figure 10-3 Bettye Babylon does not charge admission to her arboreal estate, the Hanging Gardens. Due to space limitations, Bettye only allows 200 visitors per day at her estate. The figure represents the supply and demand for admission to the Hanging Gardens. -Refer to Figure 10-3. At a price of ________, there is a shortage of tickets.

Consider the following factors: a. culture b. religion c. customs d. prices e. income Which of the factors above are likely to influence the choices consumers make?

During its run on Broadway, the play The Producers regularly sold out all available tickets at the St. James Theater. The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so. The best explanation for this decision is

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result. How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

For which of the following products is social influence likely to have the greatest impact?

Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme. Ramotswe, why does she not simply give away the new pair, she said: "But I paid so much for them." Grace's behavior

The word "util" has been used by economists in the past as an objective measure of utility. Today economists believe that

Figure 10-6 -Refer to Figure 10-6. Suppose the price of pizza increases while the price of hamburger remains constant. Then, the consumer's

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior?

The income effect of an increase in the price of peaches is

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

A consumer's budget constraint is

What is the marginal rate of substitution?

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: "Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket?" Scenario B: "Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theater you discover that you have lost a $10 bill. Would you still pay $10 for a ticket for the play?" As long as additional tickets are available, there's no meaningful difference between losing $10 in cash before buying a ticket, and losing the $10 ticket after buying it. In both cases, you are out $10. Yet, far more subjects (88 percent) in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A, only 46 percent of the subjects say they would be willing to spend another $10 to see the play. Which of the following is the best explanation for the results of the experiment?

Consider a downward-sloping demand curve. When the price of a normal good increases, the income and substitution effects

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month. The price of fish is $8 per pound and chicken is $4 per pound. a. What is the amount of income allocated to fish and chicken consumption? b. What is the price ratio (the price of fish relative to the price of chicken)? c. Explain the meaning of the price ratio you computed. d. If the Wongs maximize utility, what must the ratio of the marginal utility of fish to the marginal utility of chicken be equal to? e. If the price of chicken rises, will the Wong family consume more chicken, less chicken, or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

Optimal decisions are made