Question 1

Figure 10-6  
-Refer to Figure 10-6. The consumer can afford consumption bundles

Accepted Answer

A)  r, s, t, and u. 
B)  r, s, v, and u. 
C)  s, v, and u only. 
D)  s, v, t, and u. 
A)  r, s, t, and u. 
B)  r, s, v, and u. 
C)  s, v, and u only. 
D)  s, v, t, and u.

Question 2

When diminishing marginal utility sets in, total utility must be negative.

Accepted Answer

A) True 
 B)False

Question 3

The demand curve for an inferior good can never be downward sloping.

Accepted Answer

A) True 
 B)False

Question 4

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

Accepted Answer

A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines. 
A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines.

Question 5

Gowri has $6 per day to purchase lunch. She spends all of her lunch money on pizza and iced tea. The price of pizza is $2.00 per slice and iced tea costs $1 per bottle.
a. Draw Gowri's budget constraint and label it BC0. Put pizza on the horizontal axis and iced tea on the vertical axis. Be sure to identify the intercept values.
b. If the price of iced tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram. Be sure to indicate any new intercept values.

Accepted Answer

a. @#IMG-DLM& b. BC₁ in the fig

Question 6

Figure 10-2   Figure 10-2 represents the demand for ice cream cones.
-Refer to Figure 10-2. When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to

Accepted Answer

A)  the price and output effects. 
B)  the income and substitution effects. 
C)  the law of diminishing marginal utility. 
D)  the fact that marginal willingness to pay falls. 
A)  the price and output effects. 
B)  the income and substitution effects. 
C)  the law of diminishing marginal utility. 
D)  the fact that marginal willingness to pay falls.

Question 7

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, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a

Accepted Answer

A)  rational decision to ignore these sunk costs. 
B)  poor decision since he had already invested his time and money on his medical career. 
C)  poor decision since doctors are in greater demand than bloggers. 
D)  hasty decision by not waiting to recoup his financial investment before giving up his medical career. 
A)  rational decision to ignore these sunk costs. 
B)  poor decision since he had already invested his time and money on his medical career. 
C)  poor decision since doctors are in greater demand than bloggers. 
D)  hasty decision by not waiting to recoup his financial investment before giving up his medical career.

Question 8

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

Accepted Answer

The good must be an

Question 9

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

Accepted Answer

A)  rises. 
B)  is constant. 
C)  declines. 
D)  fluctuates. 
A)  rises. 
B)  is constant. 
C)  declines. 
D)  fluctuates.

Question 10

Assume that Anne has $300 to spend on DVDs and CDs. Her optimal consumption of DVDs and CDs is illustrated by a tangency between a budget line and an indifference curve. Now assume that the price of CDs rises but the price of DVDs falls. How can you show that Anne is made better off by these price changes?

Accepted Answer

A)  Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B)  Show that the price changes move Anne along her budget line to a higher indifference curve. 
C)  Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D)  Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs. 
A)  Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B)  Show that the price changes move Anne along her budget line to a higher indifference curve. 
C)  Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D)  Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs.

Question 11

Marginal utility is

Accepted Answer

A)  the change in total utility divided by the price of the last unit of a good or service consumed. 
B)  the change in total utility a person receives from consuming an additional unit of a good or service. 
C)  the utility from consuming a given quantity of a good or service. 
D)  the decrease in total utility from consuming more and more units of a good or service. 
A)  the change in total utility divided by the price of the last unit of a good or service consumed. 
B)  the change in total utility a person receives from consuming an additional unit of a good or service. 
C)  the utility from consuming a given quantity of a good or service. 
D)  the decrease in total utility from consuming more and more units of a good or service.

Question 12

In an experiment that employed the dictator game, economists at Cornell University gave student "allocators" the option of dividing $20 in only two ways (a) $18 for themselves and $2 to another student, or (b) $10 for themselves and $10 to another student. What was one result from this experiment?

Accepted Answer

A)  Most allocators chose to give themselves $18 and $2 to the other students. 
B)  Most of the students who were not allocators did not like having someone else make decisions for them. 
C)  A majority of the female allocators chose option (a); a majority of the male allocators chose option (b). 
D)  Most of the allocators apparently valued acting fairly. 
A)  Most allocators chose to give themselves $18 and $2 to the other students. 
B)  Most of the students who were not allocators did not like having someone else make decisions for them. 
C)  A majority of the female allocators chose option (a); a majority of the male allocators chose option (b). 
D)  Most of the allocators apparently valued acting fairly.

Question 13

Behavioral economics helps explain why customers ________ at J.C. Penney.

Accepted Answer

A)  favored the policy of everyday low prices and not sales and coupons 
B)  favored sales and coupons and not the policy of everyday low prices 
C)  were equally happy with sales and coupons and the policy of everyday low prices 
D)  responded negatively to both sales and coupons and the policy of everyday low prices 
A)  favored the policy of everyday low prices and not sales and coupons 
B)  favored sales and coupons and not the policy of everyday low prices 
C)  were equally happy with sales and coupons and the policy of everyday low prices 
D)  responded negatively to both sales and coupons and the policy of everyday low prices

Question 14

A change in the price of a good has two effects on the quantity consumed. What are these effects?

Accepted Answer

A)  the income effect and the substitution effect 
B)  the utility effect and the budget effect 
C)  the total utility effect and marginal utility effect 
D)  the consumption effect and expenditure effect 
A)  the income effect and the substitution effect 
B)  the utility effect and the budget effect 
C)  the total utility effect and marginal utility effect 
D)  the consumption effect and expenditure effect

Question 15

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 ticket price of $0, the marginal benefit from the 200th ticket is

Accepted Answer

A)  equal to the price. 
B)  below the price. 
C)  above the price. 
D)  negative. 
A)  equal to the price. 
B)  below the price. 
C)  above the price. 
D)  negative.

Question 16

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is

Accepted Answer

A)  maximized. 
B)  decreasing. 
C)  negative. 
D)  increasing. 
A)  maximized. 
B)  decreasing. 
C)  negative. 
D)  increasing.

Question 17

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

Accepted Answer

A)  a normal good; very small 
B)  an inferior good; very small 
C)  a normal good; very large 
D)  an inferior good; very large 
A)  a normal good; very small 
B)  an inferior good; very small 
C)  a normal good; very large 
D)  an inferior good; very large

Question 18

Article Summary
The use of celebrities endorsements can be a good way to promote a brand, as long as the brand fits the celebrity. The article discusses three reasons why a company should use celebrity endorsements:
1.	Celebrities have a large range of followers, giving them the ability to build brand equity which created product differentiation to consumers.
2.	Companies can reach a global audience since celebrities have worldwide fan bases, and an endorsement can link the product to a celebrity's skills, making fans feel closer to and more like the celebrity.
3.	Celebrity endorsements increase consumers' awareness of a product, since consumers are more likely to remember an ad linked to a celebrity.
However, not all celebrities are the right fit for all products. Endorsements can backfire if the celebrities are promoting something they would never use, giving the impression of nothing more than a sponsored advertisement.

-Refer to the Article Summary. One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Accepted Answer

A)  more utility 
B)  diminishing utility 
C)  greater network externalities 
D)  increased path dependency 
A)  more utility 
B)  diminishing utility 
C)  greater network externalities 
D)  increased path dependency

Question 19

Why do indifference curves have a negative slope?

Accepted Answer

A)  because consumers take market prices as given 
B)  because consumers face a budget constraint 
C)  because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D)  because scarcity implies that it is not possible to consume more of one good without giving up some of the other 
A)  because consumers take market prices as given 
B)  because consumers face a budget constraint 
C)  because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D)  because scarcity implies that it is not possible to consume more of one good without giving up some of the other

Question 20

Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

Accepted Answer

A)  20. 
B)  80. 
C)  90. 
D)  180. 
A)  20. 
B)  80. 
C)  90. 
D)  180.

Exam 10: Consumer Choice and Behavioral Economics

Figure 10-6 -Refer to Figure 10-6. The consumer can afford consumption bundles

When diminishing marginal utility sets in, total utility must be negative.

The demand curve for an inferior good can never be downward sloping.

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

Figure 10-2 Figure 10-2 represents the demand for ice cream cones. -Refer to Figure 10-2. When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

Marginal utility is

In an experiment that employed the dictator game, economists at Cornell University gave student "allocators" the option of dividing $20 in only two ways (a) $18 for themselves and $2 to another student, or (b) $10 for themselves and $10 to another student. What was one result from this experiment?

Behavioral economics helps explain why customers ________ at J.C. Penney.

A change in the price of a good has two effects on the quantity consumed. What are these effects?

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

Why do indifference curves have a negative slope?

Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

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

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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

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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

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Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be and make up a portion of a consumer's budget.