Exam 10: Consumer Choice and Behavioral Economics

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

The quantity of tickets demanded to the Super Bowl is always greater than the quantity supplied. Which of the following in the best explanation why the National Football League does not raise the price of tickets to the level where the quantity demanded equals the quantity supplied?

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?

The income effect of a price increase causes a decrease in the quantity of a normal good demanded.

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

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 an example of

A significant downside to network externalities is that

Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important.

Figure 10-10 -Refer to Figure 10-10. If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC₁?

A network externality occurs when

Wilbur Rickhiser, a financial advisor, recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss. Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report. Many of my clients in this situation will hold the stock, hoping the price will later rise above $50. In most cases like this the price does not rise and may even fall. You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice?

Firms that automatically enroll their employees in retirement plans, giving them the option to opt-out instead of to opt-in, is an example of a form of behavioral economics known as

Figure 10-10 -Refer to Figure 10-10. If the consumer has $240 to spend on DVDs and CDs, what is the price of a CD if the budget constraint is BC₂?

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then if preferences are transitive

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea. The price of a pineapple is $4 and the price of a bottle of green tea is $2. The table below shows Arnie's utility values. Use the table to answer the questions that follow the table. a. Complete the table by filling in the blank spaces. b. Suppose Arnold purchases 4 pineapples and 2 bottles of green tea. Is he consuming the optimal consumption bundle? If so, explain why. If not, what combination should he buy and why?

Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was the maximum price he was willing to pay. On the day of the performance of the play Adam refuses to sell the ticket for $150. How would behavioral economists explain Adam's refusal to sell his ticket?

We can derive the market demand curve for gold earrings

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called

Figure 10-5 -Refer to Figure 10-5. What is the marginal rate of substitution for one bar of chocolate between g and h?