Question 1

What does the marginal rate of substitution measure?

Accepted Answer

A)  It measures the rate at which a consumer must give up one good to purchase another good. 
B)  It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C)  It measures the change in utility from consuming one additional unit of a good. 
D)  It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant. 
A)  It measures the rate at which a consumer must give up one good to purchase another good. 
B)  It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C)  It measures the change in utility from consuming one additional unit of a good. 
D)  It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

Question 2

Why might network externalities result in products that contain inferior technologies?

Accepted Answer

Network externalities can create signifi

Question 3

Table 10-2
   Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
-Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

Accepted Answer

A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches 
A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches

Question 4

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe

Accepted Answer

A)  consumers will always buy goods and services at the lowest possible prices. 
B)  consumers spend their incomes to order to accumulate the most goods and services. 
C)  consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them. 
D)  consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others. 
A)  consumers will always buy goods and services at the lowest possible prices. 
B)  consumers spend their incomes to order to accumulate the most goods and services. 
C)  consumers make choices that will leave them as satisfied as possible given their incomes, tastes, and the prices of goods and services available to them. 
D)  consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others.

Question 5

Which of the following statements is false?

Accepted Answer

A)  There is an indifference curve associated with any combination of goods selected by a consumer. 
B)  A consumer is indifferent among all consumption bundles along a given budget line. 
C)  All consumption bundles along a given indifference curve are equally desirable. 
D)  Consumption bundles that lie on higher indifference curves yield higher utility. 
A)  There is an indifference curve associated with any combination of goods selected by a consumer. 
B)  A consumer is indifferent among all consumption bundles along a given budget line. 
C)  All consumption bundles along a given indifference curve are equally desirable. 
D)  Consumption bundles that lie on higher indifference curves yield higher utility.

Question 6

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Accepted Answer

A)  of their work with experimental economics. 
B)  they discovered the first example of a Giffen good. 
C)  of their work on the substitution and income effects of price changes. 
D)  they proved that external economies would lead to market failure. 
A)  of their work with experimental economics. 
B)  they discovered the first example of a Giffen good. 
C)  of their work on the substitution and income effects of price changes. 
D)  they proved that external economies would lead to market failure.

Question 7

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

Accepted Answer

A)  income and hold everything else constant. 
B)  tastes and preferences and hold everything else constant. 
C)  the price of the product and hold everything else constant. 
D)  the price of a close substitute and hold everything else constant. 
A)  income and hold everything else constant. 
B)  tastes and preferences and hold everything else constant. 
C)  the price of the product and hold everything else constant. 
D)  the price of a close substitute and hold everything else constant.

Question 8

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 second 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 9

Which of the following describes the substitution effect of a price change?

Accepted Answer

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

Question 10

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. A change in the price of candy only is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above panels. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above panels.

Question 11

Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of a cappuccino is $4 each and apple turnovers are $1 each.
a. What is the amount of income allocated to cappuccino and apple turnover consumption?
b. What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers, or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

a. Income = $56
b. Price of cappuccino /

Question 12

Figure 10-1  
-Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

Accepted Answer

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

Question 13

In the utility maximizing model, consumer preferences are assumed to be transitive. What does this mean?

Accepted Answer

A)  that consumers prefer more of a good to less 
B)  that consumers have the freedom to change their preferences from time to time 
C)  that consumers have preferences that are relatively consistent in the time period under consideration 
D)  that consumers go through cycles in their consumption behavior 
A)  that consumers prefer more of a good to less 
B)  that consumers have the freedom to change their preferences from time to time 
C)  that consumers have preferences that are relatively consistent in the time period under consideration 
D)  that consumers go through cycles in their consumption behavior

Question 14

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

Accepted Answer

A)  rational consumer behavior. 
B)  the endowment effect. 
C)  the fallacy of composition. 
D)  the failure to ignore sunk costs. 
A)  rational consumer behavior. 
B)  the endowment effect. 
C)  the fallacy of composition. 
D)  the failure to ignore sunk costs.

Question 15

Suppose the consumer's income increases while the prices of the goods remain constant. Then the

Accepted Answer

A)  budget constraint shifts inward parallel to the original budget constraint. 
B)  budget constraint shifts outward parallel to the original budget constraint. 
C)  indifference curves shift outward away from the origin. 
D)  indifference curves become flatter. 
A)  budget constraint shifts inward parallel to the original budget constraint. 
B)  budget constraint shifts outward parallel to the original budget constraint. 
C)  indifference curves shift outward away from the origin. 
D)  indifference curves become flatter.

Question 16

Consumers maximize total utility within their budget constraint by

Accepted Answer

A)  buying the cheapest goods they can find. 
B)  buying whatever they like the best. 
C)  buying the goods with the largest marginal utility per dollar spent. 
D)  spending the same dollar amount for each good. 
A)  buying the cheapest goods they can find. 
B)  buying whatever they like the best. 
C)  buying the goods with the largest marginal utility per dollar spent. 
D)  spending the same dollar amount for each good.

Question 17

You participate in a taste test for a new protein supplement called "Kapow." You are given five consecutive one ounce vials of the supplement and after consuming each vial you are asked to note your reaction. You consume the first vial and your response is: "Hmmm, quite good!" After the second, you say, "Not bad at all." After the third, you note, "It's alright." and after the fourth you wince, "No more, the after-taste is getting to me. I need water." What economic principle does this scenario illustrate? Define the principle.

Accepted Answer

It illustrates the law of diminishing ma

Question 18

Describe the demand curve for a Giffen good.

Accepted Answer

The demand curve for a Giffen

Question 19

The order of the letters along the rows of computer keyboards could be changed to allow users to type faster, but this would inconvenience the vast majority of people who learned to type with the current keyboard layout. The costs of switching to a new layout make this change unlikely. This is an example of

Accepted Answer

A)  path dependency. 
B)  how social influences overwhelm the substitution effect of a price change. 
C)  how the elasticity of demand for typewriters has been affected by externalities. 
D)  how consumers sometimes do not behave rationally. 
A)  path dependency. 
B)  how social influences overwhelm the substitution effect of a price change. 
C)  how the elasticity of demand for typewriters has been affected by externalities. 
D)  how consumers sometimes do not behave rationally.

Question 20

What is the common feature displayed by the following items? 
a. eating at a newly opened "fusion" cuisine restaurant
b. attending a Red Sox game in Fenway Park
c. wearing Lucky Brand designer jeans

Accepted Answer

A)  They are all highly inelastic goods. 
B)  The consumption of these goods takes place privately. 
C)  The consumption of these goods takes place publicly. 
D)  They tend to be consumed by better educated people. 
A)  They are all highly inelastic goods. 
B)  The consumption of these goods takes place privately. 
C)  The consumption of these goods takes place publicly. 
D)  They tend to be consumed by better educated people.

Exam 10: Consumer Choice and Behavioral Economics

What does the marginal rate of substitution measure?

Why might network externalities result in products that contain inferior technologies?

Table 10-2 Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. -Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

Economists usually assume that people act in a rational, self-interested way. In explaining how consumers make choices this means that economists believe

Which of the following statements is false?

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

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 second candy bar is

Which of the following describes the substitution effect of a price change?

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. A change in the price of candy only is shown in

Figure 10-1 -Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

In the utility maximizing model, consumer preferences are assumed to be transitive. What does this mean?

Suppose the consumer's income increases while the prices of the goods remain constant. Then the

Consumers maximize total utility within their budget constraint by

Describe the demand curve for a Giffen good.

What is the common feature displayed by the following items? a. eating at a newly opened "fusion" cuisine restaurant b. attending a Red Sox game in Fenway Park c. wearing Lucky Brand designer jeans

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

Filters

Figure 10-1 -Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀. This change in quantity demanded is due to