Question 1

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A)  Giffen goods; luxury goods 
B)  the income effect; the substitution effect 
C)  the ultimatum game; the dictator game 
D)  network externalities; the endowment effect 
A)  Giffen goods; luxury goods 
B)  the income effect; the substitution effect 
C)  the ultimatum game; the dictator game 
D)  network externalities; the endowment effect

Question 2

Which of the following is a common mistake consumers commit when they make decisions?

Accepted Answer

A)  They take into account nonmonetary opportunity costs but ignore monetary costs. 
B)  They are overly pessimistic about their future behavior. 
C)  They fail to ignore sunk costs. 
D)  They sometimes value fairness too much. 
A)  They take into account nonmonetary opportunity costs but ignore monetary costs. 
B)  They are overly pessimistic about their future behavior. 
C)  They fail to ignore sunk costs. 
D)  They sometimes value fairness too much.

Question 3

A sunk cost is a cost that has already been paid and cannot be recovered.

Accepted Answer

A) True 
 B)False

Question 4

What is an indifference curve?

Accepted Answer

A)  It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. 
B)  It is a curve that shows the combinations of consumption bundles that give the consumer the same utility. 
C)  It is a curve that ranks a consumer's preference for various consumption bundles. 
D)  It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles. 
A)  It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. 
B)  It is a curve that shows the combinations of consumption bundles that give the consumer the same utility. 
C)  It is a curve that ranks a consumer's preference for various consumption bundles. 
D)  It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.

Question 5

The income effect due to a price decrease will result in an increase in the quantity demanded for

Accepted Answer

A)  a Giffen good. 
B)  an inferior good. 
C)  a public good. 
D)  a normal good. 
A)  a Giffen good. 
B)  an inferior good. 
C)  a public good. 
D)  a normal good.

Question 6

Suppose you pre-ordered a non-refundable movie ticket to Avengers: Infinity War. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

Accepted Answer

A)  Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  Your should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility. 
A)  Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  Your should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility.

Question 7

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

Accepted Answer

A)  the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for nectarines (a substitute good) that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C)  the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D)  the change in the demand for peaches that results when the price of peaches increases. 
A)  the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for nectarines (a substitute good) that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C)  the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D)  the change in the demand for peaches that results when the price of peaches increases.

Question 8

If preferences are transitive, indifference curves

Accepted Answer

A)  intersect at the equilibrium consumption bundle. 
B)  intersect at the optimum consumption bundle. 
C)  intersect where the marginal rate of substitution for each indifference curve is equal. 
D)  do not intersect. 
A)  intersect at the equilibrium consumption bundle. 
B)  intersect at the optimum consumption bundle. 
C)  intersect where the marginal rate of substitution for each indifference curve is equal. 
D)  do not intersect.

Question 9

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?

Accepted Answer

A)  Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent. 
A)  Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent.

Question 10

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, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A)  Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B)  Her total utility, the marginal utility of the last cup of soup consumed, and the marginal utility of the last sandwich consumed all increase. 
C)  Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D)  Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E)  Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases. 
A)  Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B)  Her total utility, the marginal utility of the last cup of soup consumed, and the marginal utility of the last sandwich consumed all increase. 
C)  Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D)  Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E)  Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 11

There are two conditions necessary for a consumer to maximize her utility. One is that the marginal utilities per dollar spent on each good and service consumed are equal. What is the other condition?

Accepted Answer

A)  Total spending on all goods and services must equal the amount available to be spent. 
B)  The consumer must be satisfied with the choices she makes. 
C)  The total spent on each good and service is the same. 
D)  The prices of each good and service consumed must not be too high. 
A)  Total spending on all goods and services must equal the amount available to be spent. 
B)  The consumer must be satisfied with the choices she makes. 
C)  The total spent on each good and service is the same. 
D)  The prices of each good and service consumed must not be too high.

Question 12

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. What is Keira's marginal utility per dollar spent on the third cup of soup?

Accepted Answer

A)  72 utils 
B)  36 utils 
C)  12 utils 
D)  6 utils 
A)  72 utils 
B)  36 utils 
C)  12 utils 
D)  6 utils

Question 13

The endowment effect suggests that that people

Accepted Answer

A)  have a strong attachment to their property, regardless of whether they paid to acquire it. 
B)  have a strong sense of fairness. 
C)  are concerned about the welfare of others. 
D)  act in ways to distort market prices. 
A)  have a strong attachment to their property, regardless of whether they paid to acquire it. 
B)  have a strong sense of fairness. 
C)  are concerned about the welfare of others. 
D)  act in ways to distort market prices.

Question 14

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Accepted Answer

A) True 
 B)False

Question 15

Goods with upward sloping demand curves are referred to as

Accepted Answer

A)  Marshall goods. 
B)  Giffen goods. 
C)  substitute goods. 
D)  luxury goods. 
A)  Marshall goods. 
B)  Giffen goods. 
C)  substitute goods. 
D)  luxury goods.

Question 16

Economists assume that the goal of consumers is to

Accepted Answer

A)  do as little work as possible to survive. 
B)  make themselves as well off as possible. 
C)  spend all their income. 
D)  consume as much as possible. 
A)  do as little work as possible to survive. 
B)  make themselves as well off as possible. 
C)  spend all their income. 
D)  consume as much as possible.

Question 17

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

Accepted Answer

A)  car buyers are irrational. 
B)  the total utility of less expensive cars is greater than that of luxury cars. 
C)  the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. 
D)  luxury cars cost a lot more than non-luxury cars. 
A)  car buyers are irrational. 
B)  the total utility of less expensive cars is greater than that of luxury cars. 
C)  the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. 
D)  luxury cars cost a lot more than non-luxury cars.

Question 18

Figure 10-4  
-Refer to Figure 10-4. Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences?

Accepted Answer

A)  They have identical movie preferences. 
B)  Hardy enjoys romantic comedies more than Laurel. 
C)  Hardy enjoys science fiction movies more than Laurel. 
D)  The diagrams do not provide any information about relative preferences. 
A)  They have identical movie preferences. 
B)  Hardy enjoys romantic comedies more than Laurel. 
C)  Hardy enjoys science fiction movies more than Laurel. 
D)  The diagrams do not provide any information about relative preferences.

Question 19

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Accepted Answer

A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change 
A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change

Question 20

One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.

Accepted Answer

A) True 
 B)False

Exam 10: Consumer Choice and Behavioral Economics

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Which of the following is a common mistake consumers commit when they make decisions?

A sunk cost is a cost that has already been paid and cannot be recovered.

What is an indifference curve?

The income effect due to a price decrease will result in an increase in the quantity demanded for

Suppose you pre-ordered a non-refundable movie ticket to Avengers: Infinity War. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

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

If preferences are transitive, indifference curves

There are two conditions necessary for a consumer to maximize her utility. One is that the marginal utilities per dollar spent on each good and service consumed are equal. What is the other condition?

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. What is Keira's marginal utility per dollar spent on the third cup of soup?

The endowment effect suggests that that people

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Goods with upward sloping demand curves are referred to as

Economists assume that the goal of consumers is to

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

Figure 10-4 -Refer to Figure 10-4. Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences?

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.