Question 1

The income effect of an increase in the price of salmon

Accepted Answer

A)  is the change in the demand for salmon when income increases. 
B)  refers to the relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon. 
C)  refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. 
D)  is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power. 
A)  is the change in the demand for salmon when income increases. 
B)  refers to the relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon. 
C)  refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. 
D)  is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power.

Question 2

The enjoyment or satisfaction people receive from consuming goods and services is called utility.

Accepted Answer

A) True 
 B)False

Question 3

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in

Accepted Answer

A)  a decrease in the demand for macaroni and cheese. 
B)  an increase in the quantity of macaroni and cheese demanded. 
C)  a decrease in the quantity of macaroni and cheese demanded. 
D)  an increase in the demand for macaroni and cheese. 
A)  a decrease in the demand for macaroni and cheese. 
B)  an increase in the quantity of macaroni and cheese demanded. 
C)  a decrease in the quantity of macaroni and cheese demanded. 
D)  an increase in the demand for macaroni and cheese.

Question 4

Economists Gary Becker and Kevin Murphy are associated with which of the following?

Accepted Answer

A)  They discovered the first example of a Giffen good. 
B)  They have argued that social factors are not important in explaining the choices consumers make. 
C)  They both believe that consumers appear to receive utility from consuming goods they believe are popular. 
D)  They discovered that price changes have both income and substitution effects. 
A)  They discovered the first example of a Giffen good. 
B)  They have argued that social factors are not important in explaining the choices consumers make. 
C)  They both believe that consumers appear to receive utility from consuming goods they believe are popular. 
D)  They discovered that price changes have both income and substitution effects.

Question 5

Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

Accepted Answer

A) True 
 B)False

Question 6

If the marginal utility Ida Mae receives from eating chicken wings is negative then

Accepted Answer

A)  her total utility from eating chicken wings has fallen. 
B)  her total utility from eating chicken wings is negative as well. 
C)  Ida Mae definitely does not like chicken wings. 
D)  her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing. 
A)  her total utility from eating chicken wings has fallen. 
B)  her total utility from eating chicken wings is negative as well. 
C)  Ida Mae definitely does not like chicken wings. 
D)  her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing.

Question 7

Firms pay famous individuals to endorse their products because

Accepted Answer

A)  apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. 
B)  the firms are irrational and are wasting advertising expenditures. 
C)  famous people obviously know what are the best goods and services. 
D)  famous people only consume high-quality products. 
A)  apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. 
B)  the firms are irrational and are wasting advertising expenditures. 
C)  famous people obviously know what are the best goods and services. 
D)  famous people only consume high-quality products.

Question 8

Adhira buys chocolates and almonds. She has 3 bars of chocolates and 4 bags of almonds. The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18. Is Adhira maximizing her utility?

Accepted Answer

A)  Yes, the marginal utility from the last unit of each good is equal. 
B)  No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C)  No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D)  No, without information on her income and the prices of the two goods, we cannot answer the question. 
A)  Yes, the marginal utility from the last unit of each good is equal. 
B)  No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C)  No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D)  No, without information on her income and the prices of the two goods, we cannot answer the question.

Question 9

Which of the following correctly describes the result of a price increase for an inferior good?

Accepted Answer

A)  Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B)  The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C)  The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D)  The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease. 
A)  Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B)  The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C)  The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D)  The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease.

Question 10

Table 10-7
   Table 10-7 shows Antonio's utility from beer and pizza.
-Refer to Table 10-7. What is Antonio's marginal utility from consuming the fifth beer?

Accepted Answer

A)  4 utils 
B)  13.6 utils 
C)  69 utils 
D)  134 utils 
A)  4 utils 
B)  13.6 utils 
C)  69 utils 
D)  134 utils

Question 11

What must be true in terms of the income effect, the substitution effect, and the type of good for the good's demand curve to be upward sloping?

Accepted Answer

The income effect would have t

Question 12

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

Accepted Answer

A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect. 
A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect.

Question 13

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

Accepted Answer

A)  2,000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility. 
A)  2,000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility.

Question 14

One reason that consumers and businesses might not act rationally is

Accepted Answer

A)  it is difficult to obtain enough information about the elasticities of demand and supply. 
B)  they may not realize their actions are inconsistent with their goals. 
C)  consumer tastes change constantly. 
D)  they do not always value fairness when they make choices. 
A)  it is difficult to obtain enough information about the elasticities of demand and supply. 
B)  they may not realize their actions are inconsistent with their goals. 
C)  consumer tastes change constantly. 
D)  they do not always value fairness when they make choices.

Question 15

If you received negative marginal utility from consuming the 4th slice of pizza, then your total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.

Accepted Answer

A) True 
 B)False

Question 16

Before digital photography, most film processing companies had a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed. The companies did this knowing that most customers did not ask for refunds. This was an example of consumers

Accepted Answer

A)  failing to ignore sunk costs. 
B)  being overly optimistic about their future behavior. 
C)  not taking nonmonetary opportunity costs into account. 
D)  not making themselves aware of the policy regarding refunds. 
A)  failing to ignore sunk costs. 
B)  being overly optimistic about their future behavior. 
C)  not taking nonmonetary opportunity costs into account. 
D)  not making themselves aware of the policy regarding refunds.

Question 17

Economists assume people's tastes are identical.

Accepted Answer

A) True 
 B)False

Question 18

The average price of gasoline in your neighborhood is $2.15 per gallon. Your neighbor, Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $2.06 per gallon However, she cautions you that there are usually long lines at that station. Is her suggestion beneficial to you?

Accepted Answer

A)  Yes, since gasoline is a necessity for car owners, the total cost savings would be relatively substantial. 
B)  No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station. 
C)  Yes, the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. 
D)  No, my friend is misled; clearly, the lower-priced gasoline must be of inferior quality and could damage vehicles. 
A)  Yes, since gasoline is a necessity for car owners, the total cost savings would be relatively substantial. 
B)  No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station. 
C)  Yes, the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. 
D)  No, my friend is misled; clearly, the lower-priced gasoline must be of inferior quality and could damage vehicles.

Question 19

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

A) True 
 B)False

Question 20

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used for computer keyboards today). What is this phenomenon called?

Accepted Answer

A)  network externalities 
B)  path dependency 
C)  sunk cost 
D)  comparative advantage 
A)  network externalities 
B)  path dependency 
C)  sunk cost 
D)  comparative advantage

Exam 10: Consumer Choice and Behavioral Economics

The income effect of an increase in the price of salmon

The enjoyment or satisfaction people receive from consuming goods and services is called utility.

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good) results in

Economists Gary Becker and Kevin Murphy are associated with which of the following?

Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

If the marginal utility Ida Mae receives from eating chicken wings is negative then

Firms pay famous individuals to endorse their products because

Adhira buys chocolates and almonds. She has 3 bars of chocolates and 4 bags of almonds. The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18. Is Adhira maximizing her utility?

Which of the following correctly describes the result of a price increase for an inferior good?

Table 10-7 Table 10-7 shows Antonio's utility from beer and pizza. -Refer to Table 10-7. What is Antonio's marginal utility from consuming the fifth beer?

What must be true in terms of the income effect, the substitution effect, and the type of good for the good's demand curve to be upward sloping?

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

One reason that consumers and businesses might not act rationally is

If you received negative marginal utility from consuming the 4th slice of pizza, then your total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.

Economists assume people's tastes are identical.

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used for computer keyboards today). What is this phenomenon called?

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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