Question 1

The income effect of a price change refers to

Accepted Answer

A)  the change in demand that occurs when consumer income changes. 
B)  the change in the quantity demanded that results from a change in price, making the good more or less expensive relative to other goods, holding everything else constant. 
C)  the change in demand that occurs when both income and price change. 
D)  the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
A)  the change in demand that occurs when consumer income changes. 
B)  the change in the quantity demanded that results from a change in price, making the good more or less expensive relative to other goods, holding everything else constant. 
C)  the change in demand that occurs when both income and price change. 
D)  the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

Question 2

Behavioral economists examine choices that consumers make that are not economically rational. Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs. Why do consumers not act rationally when the result is that they make themselves worse off?

Accepted Answer

Most people who do not act rationally do

Question 3

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

Accepted Answer

A) True 
 B)False

Question 4

What is a Giffen good?

Accepted Answer

A Giffen good is something con

Question 5

In the ultimatum game, allocators usually offer recipients at least a 40 percent share of the money, and recipients almost always reject offers of less than a 10 percent share. Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers?

Accepted Answer

A)  Fear of arousing outrage and abhorrence could influence economic decisions. 
B)  People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C)  Some people are careful not to engage in economic behavior that might offend and alienate others. 
D)  Allocators can count on recipients to ignore all considerations except financial benefit. 
A)  Fear of arousing outrage and abhorrence could influence economic decisions. 
B)  People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C)  Some people are careful not to engage in economic behavior that might offend and alienate others. 
D)  Allocators can count on recipients to ignore all considerations except financial benefit.

Question 6

All but one of the following people were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making. Which person did not receive a Nobel Prize for this work?

Accepted Answer

A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais 
A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais

Question 7

What is an indifference curve? Why can indifference curves never cross?

Accepted Answer

An indifference curve shows the combinat

Question 8

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

Accepted Answer

A) True 
 B)False

Question 9

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book purchased?

Accepted Answer

A)  2 utils 
B)  12 utils 
C)  16 utils 
D)  64 utils 
A)  2 utils 
B)  12 utils 
C)  16 utils 
D)  64 utils

Question 10

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Accepted Answer

A)  whether consumers care about fairness when they make decisions. 
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. 
C)  whether consumers understand the difference between implicit costs and explicit costs. 
D)  whether consumers understand the rule of equal marginal utility per dollar spent. 
A)  whether consumers care about fairness when they make decisions. 
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. 
C)  whether consumers understand the difference between implicit costs and explicit costs. 
D)  whether consumers understand the rule of equal marginal utility per dollar spent.

Question 11

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again. This is evidence that

Accepted Answer

A)  people would rather pay for good service at an inexpensive restaurant than pay higher prices and receive poor service at an expensive restaurant. 
B)  people enjoy eating at restaurants more than eating at home. 
C)  people treat others fairly even if doing so makes them worse off financially. 
D)  there has been an improvement in the service people receive in restaurants over time, partly because the restaurant industry has become more competitive. 
A)  people would rather pay for good service at an inexpensive restaurant than pay higher prices and receive poor service at an expensive restaurant. 
B)  people enjoy eating at restaurants more than eating at home. 
C)  people treat others fairly even if doing so makes them worse off financially. 
D)  there has been an improvement in the service people receive in restaurants over time, partly because the restaurant industry has become more competitive.

Question 12

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Accepted Answer

A)  57 utils 
B)  35 utils. 
C)  15 utils. 
D)  unknown as more information is needed to determine the answer. 
A)  57 utils 
B)  35 utils. 
C)  15 utils. 
D)  unknown as more information is needed to determine the answer.

Question 13

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 price of ________, there is neither a shortage nor surplus of tickets.

Accepted Answer

A)  $0 
B)  $10 
C)  between $10 and $25 
D)  $25 
A)  $0 
B)  $10 
C)  between $10 and $25 
D)  $25

Question 14

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

Accepted Answer

A)  external 
B)  implicit 
C)  switching 
D)  marginal 
A)  external 
B)  implicit 
C)  switching 
D)  marginal

Question 15

The demand curve for a Giffen good slopes upward.

Accepted Answer

A) True 
 B)False

Question 16

A common mistake made by consumers is the failure to take into account the monetary costs of their actions.

Accepted Answer

A) True 
 B)False

Question 17

What is the endowment effect?

Accepted Answer

A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years 
A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years

Question 18

The slope of the indifference curve is referred to as

Accepted Answer

A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal tradeoff rate. 
A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal tradeoff rate.

Question 19

If your total satisfaction increases when you consume another unit, your marginal utility must be

Accepted Answer

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

Question 20

The substitution effect of a decrease in the price of movie tickets results in

Accepted Answer

A)  an increase in the quantity of movie tickets demanded. 
B)  a decrease in the quantity of movie tickets demanded. 
C)  an increase in the demand for movie tickets. 
D)  a decrease in the demand for movie tickets. 
A)  an increase in the quantity of movie tickets demanded. 
B)  a decrease in the quantity of movie tickets demanded. 
C)  an increase in the demand for movie tickets. 
D)  a decrease in the demand for movie tickets.

Exam 10: Consumer Choice and Behavioral Economics

The income effect of a price change refers to

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

What is a Giffen good?

All but one of the following people were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making. Which person did not receive a Nobel Prize for this work?

What is an indifference curve? Why can indifference curves never cross?

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books. The price of a used novel = $4 and the price of an audio book = $8. If the marginal utility of the last novel was 32 units of utility (utils) what was the marginal utility of the last audio book purchased?

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again. This is evidence that

If a consumer receives 22 units of marginal utility for consuming the first can of soda, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

The demand curve for a Giffen good slopes upward.

A common mistake made by consumers is the failure to take into account the monetary costs of their actions.

What is the endowment effect?

The slope of the indifference curve is referred to as

If your total satisfaction increases when you consume another unit, your marginal utility must be

The substitution effect of a decrease in the price of movie tickets results in

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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