Exam 10: Consumer Choice and Behavioral Economics

Figure 10-8 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 10-8. -Refer to Figure 10-8. Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged. The income effect of this price change is represented by the movement from

If, when you consume another piece of candy, your marginal utility is zero, then

The satisfaction a person receives from consuming goods and services is called

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 a decrease in total utility following an increase in the price of candy?

Some economists have argued that path dependence and switching costs can lead to market failure. Which of the following is an example of this argument?

Costs that have already been incurred, and which cannot be recovered, are known as

The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.

Marginal utility can be

In their surveys of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler found that

Behavioral economics is the study of situations in which people make rational choices.

Jamal, Lawson, and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant. It is possible that some of the people in line won't be served at all before the restaurant closes. Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a. In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product. Consequently, a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity. b. Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers. c. The demand for restaurant meals is relatively elastic and if the firm raises prices it will lower its profits.

What is behavioral economics?

In making decisions about what to consume, a person's goal is to

Consider a good whose consumption takes place publicly. Your decision to buy that good depends

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

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

The choice of a good is path dependent when

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

All consumption bundles along a given indifference curve are equally desirable.

The iPod is a product without any significant network externalities.