Question 1

Traditionally, economists have considered culture, customs, and religion as

Accepted Answer

A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis. 
A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis.

Question 2

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Accepted Answer

A) True 
 B)False

Question 3

Table 10-4
  
-Refer to Table 10-4. For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches. Which of the following statements is false?

Accepted Answer

A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximizes her utility she will buy three grilled chicken sandwiches. 
C)  If Mabel maximizes her utility she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility. 
A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximizes her utility she will buy three grilled chicken sandwiches. 
C)  If Mabel maximizes her utility she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility.

Question 4

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

Accepted Answer

A)  25 utils. 
B)  20 utils. 
C)  5 utils. 
D)  unknown as more information is needed to determine the answer. 
A)  25 utils. 
B)  20 utils. 
C)  5 utils. 
D)  unknown as more information is needed to determine the answer.

Question 5

Table 10-5
  
-Refer to Table 10-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub) sandwiches and tacos. Assume that the price of a sub sandwich is $4 and the price of a taco is $2. When Harry's income is $14, he buys two Italian sub sandwiches and three tacos. The last column lists the values of the marginal utility per dollar for tacos when the price of a taco decreases to $1. Complete this statement: As a result of the change in price, the marginal utility of each taco Harry consumes increases and

Accepted Answer

A)  the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B)  the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good, and fewer tacos if they are an inferior good. 
C)  the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D)  the substitution effect will cause Harry to buy fewer tacos. 
A)  the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B)  the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good, and fewer tacos if they are an inferior good. 
C)  the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D)  the substitution effect will cause Harry to buy fewer tacos.

Question 6

If the price of lattes, a normal good you enjoy, falls, then

Accepted Answer

A)  the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B)  both the income and substitution effects lead you to buy more lattes. 
C)  the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more lattes purchased. 
D)  the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more lattes purchased. 
A)  the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B)  both the income and substitution effects lead you to buy more lattes. 
C)  the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more lattes purchased. 
D)  the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more lattes purchased.

Question 7

Table 10-1
   Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items.
-Refer to Table 10-1. If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume?

Accepted Answer

A)  4 glasses 
B)  5 glasses 
C)  6 glasses 
D)  He would consume an infinite amount of bubble tea if it is free. 
A)  4 glasses 
B)  5 glasses 
C)  6 glasses 
D)  He would consume an infinite amount of bubble tea if it is free.

Question 8

A Giffen good could be either a normal good or an inferior good.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Accepted Answer

A)  Petra's utility from her second apple was less than her satisfaction from her first orange. 
B)  Hudson enjoyed his second slice of pizza more than his first. 
C)  Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D)  Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant. 
A)  Petra's utility from her second apple was less than her satisfaction from her first orange. 
B)  Hudson enjoyed his second slice of pizza more than his first. 
C)  Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D)  Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Question 10

In a survey of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Accepted Answer

A)  go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B)  raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C)  sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D)  remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area. 
A)  go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B)  raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C)  sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D)  remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area.

Question 11

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

Accepted Answer

A)  is maximizing total utility and does not want to change her consumption of ankle socks or bandanas. 
B)  wants to consume more ankle socks and fewer bandanas. 
C)  wants to consume more bandanas and fewer ankle socks. 
D)  wants to consume less of both ankle sock and bandanas. 
A)  is maximizing total utility and does not want to change her consumption of ankle socks or bandanas. 
B)  wants to consume more ankle socks and fewer bandanas. 
C)  wants to consume more bandanas and fewer ankle socks. 
D)  wants to consume less of both ankle sock and bandanas.

Question 12

You wish to buy only one CD. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) Drake's latest CD for $15 which gives you 75 units of utility, or (b) Bob Dylan's "Shadows in the Night" for $10 that gives you 100 units of utility?

Accepted Answer

You should buy the Bob Dylan C

Question 13

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises, then

Accepted Answer

A)  the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded. 
B)  the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded. 
C)  both the income and substitution effects reinforce each other to decrease the quantity demanded. 
D)  the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas. 
A)  the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded. 
B)  the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded. 
C)  both the income and substitution effects reinforce each other to decrease the quantity demanded. 
D)  the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas.

Question 14

Table 10-3
  
-Refer to Table 10-3. The table above shows Lee's marginal utility from consuming ice cream cones and cans of Lime Fizz Soda. Select the phrase that completes the following statement. "We can determine the number of ice cream cones and cans of Lime Fizz Soda Lee should consume to maximize his utility

Accepted Answer

A)  if we know what Lee's budget is." 
B)  if we know what Lee's budget is and the price of an ice cream cone and the price of a can of Lime Fizz Soda." 
C)  by adding up the marginal utilities for ice cream cones and Lime Fizz Soda." 
D)  if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz Soda." 
A)  if we know what Lee's budget is." 
B)  if we know what Lee's budget is and the price of an ice cream cone and the price of a can of Lime Fizz Soda." 
C)  by adding up the marginal utilities for ice cream cones and Lime Fizz Soda." 
D)  if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz Soda."

Question 15

Which of the following is a common mistake made by consumers?

Accepted Answer

A)  taking into account the implicit costs of an activity 
B)  ignoring sunk costs 
C)  being overly optimistic about their future behavior 
D)  being overly pessimistic about their future behavior 
A)  taking into account the implicit costs of an activity 
B)  ignoring sunk costs 
C)  being overly optimistic about their future behavior 
D)  being overly pessimistic about their future behavior

Question 16

Consumers have to make tradeoffs in deciding what to consume because

Accepted Answer

A)  not all goods give them the same amount of satisfaction. 
B)  the prices of goods vary. 
C)  they are limited by a budget constraint. 
D)  there are not enough of all goods produced. 
A)  not all goods give them the same amount of satisfaction. 
B)  the prices of goods vary. 
C)  they are limited by a budget constraint. 
D)  there are not enough of all goods produced.

Question 17

Figure 10-9  
-Refer to Figure 10-9. Given the budget constraint in the diagram, which of the following statements is false?

Accepted Answer

A)  The consumer receives the same level of utility from consumption bundles d, e, and f. 
B)  Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a. 
C)  Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundle d. 
D)  The consumer's optimal bundle could be bundle d, e, or f. 
A)  The consumer receives the same level of utility from consumption bundles d, e, and f. 
B)  Consumption bundles b and c yield the same level of utility, which is higher than the utility represented by bundle a. 
C)  Although the consumer receives the same level of utility from bundles d and e, she cannot afford to purchase bundle d. 
D)  The consumer's optimal bundle could be bundle d, e, or f.

Question 18

The marginal rate of substitution is the slope of an indifference curve.

Accepted Answer

A) True 
 B)False

Question 19

Total utility is maximized in the consumption of two goods by

Accepted Answer

A)  equating the marginal utility for each good consumed. 
B)  equating the marginal utility per dollar spent for each good consumed. 
C)  equating the total utility of each good divided by its price. 
D)  maximizing expenditure on each good. 
A)  equating the marginal utility for each good consumed. 
B)  equating the marginal utility per dollar spent for each good consumed. 
C)  equating the total utility of each good divided by its price. 
D)  maximizing expenditure on each good.

Question 20

Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game. He chooses Jasmine to be the allocator and Cassandra to be the recipient. He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra. If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money. If Cassandra decides to reject her allocation, neither student gets to keep the money. How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Accepted Answer

If both students care about fairness, ea

Exam 10: Consumer Choice and Behavioral Economics

Traditionally, economists have considered culture, customs, and religion as

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

If the price of lattes, a normal good you enjoy, falls, then

A Giffen good could be either a normal good or an inferior good.

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

In a survey of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

You wish to buy only one CD. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) Drake's latest CD for $15 which gives you 75 units of utility, or (b) Bob Dylan's "Shadows in the Night" for $10 that gives you 100 units of utility?

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises, then

Which of the following is a common mistake made by consumers?

Consumers have to make tradeoffs in deciding what to consume because

Figure 10-9 -Refer to Figure 10-9. Given the budget constraint in the diagram, which of the following statements is false?

The marginal rate of substitution is the slope of an indifference curve.

Total utility is maximized in the consumption of two goods by

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

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