Question 1

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Accepted Answer

A) increasing the unit prices of their products. 
B) reducing the unit sizes of their products. 
C) producing more units of their products. 
D) passively accepting lower profits. 
A) increasing the unit prices of their products. 
B) reducing the unit sizes of their products. 
C) producing more units of their products. 
D) passively accepting lower profits.

Question 2

(Consider This) The hedonic treadmill refers to a phenomenon where

Accepted Answer

A) people can't improve their economic well-being because prices increase as fast as wages. 
B) people can't get out of debt because credit card companies use anchoring to get consumers to carr y large balances on their accounts. 
C) increasing our level of consumption doesn't make us any happier in the long term. 
D) feelings of loss offset our feelings of gain, leaving us no happier in the long term. 
A) people can't improve their economic well-being because prices increase as fast as wages. 
B) people can't get out of debt because credit card companies use anchoring to get consumers to carr y large balances on their accounts. 
C) increasing our level of consumption doesn't make us any happier in the long term. 
D) feelings of loss offset our feelings of gain, leaving us no happier in the long term.

Question 3

Behavioral economics assumes that people are

Accepted Answer

A) eager and able to estimate the benefits and costs of their decisions. 
B) ver y much aware of their preferences and are consistent in their preferences. 
C) prone to falling prey to temptation because they lack sufficient willpower. 
D) always focusing on their self-interest and maximizing their own net benefits. 
A) eager and able to estimate the benefits and costs of their decisions. 
B) ver y much aware of their preferences and are consistent in their preferences. 
C) prone to falling prey to temptation because they lack sufficient willpower. 
D) always focusing on their self-interest and maximizing their own net benefits.

Question 4

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum.Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid.Behavioral economists would expect this legislation to

Accepted Answer

A) substantially increase monthly payments, as consumers make better decisions when they have more information. 
B) overcome the status quo bias that keeps people paying the minimum. 
C) cause credit card companies to increase the minimum payments. 
D) have little effect, as anchoring would keep many people paying the minimum. 
A) substantially increase monthly payments, as consumers make better decisions when they have more information. 
B) overcome the status quo bias that keeps people paying the minimum. 
C) cause credit card companies to increase the minimum payments. 
D) have little effect, as anchoring would keep many people paying the minimum.

Question 5

(Consider This) In sunny parts of the country, solar panels generate net financial benefits in just a few years, despite having high installation costs.Despite their long-run profitability, the high upfront costs discourage many from installing solar panels.From a behavioral economics perspective, this is the result of

Accepted Answer

A) myopia. 
B) time inconsistency. 
C) status quo bias. 
D) the endowment effect. 
A) myopia. 
B) time inconsistency. 
C) status quo bias. 
D) the endowment effect.

Question 6

"Time inconsistency" refers to the

Accepted Answer

A) tendency for policies with high short-run benefits to have high long-run costs. 
B) fallacy that what is true for the short run must be true for the long run. 
C) tendency to regularly misjudge in the present what you will do in the future. 
D) tendency to misjudge how long it will take to accomplish a future task. 
A) tendency for policies with high short-run benefits to have high long-run costs. 
B) fallacy that what is true for the short run must be true for the long run. 
C) tendency to regularly misjudge in the present what you will do in the future. 
D) tendency to misjudge how long it will take to accomplish a future task.

Question 7

"Heuristics" used by the human brain refer to the

Accepted Answer

A) ability of the brain to make sophisticated and accurate mental processes. 
B) shortcuts that the brain uses in order to process information. 
C) elements in the brain that lead to consistent interpretation of all visual information. 
D) mental processes that burn and often waste a lot of energy. 
A) ability of the brain to make sophisticated and accurate mental processes. 
B) shortcuts that the brain uses in order to process information. 
C) elements in the brain that lead to consistent interpretation of all visual information. 
D) mental processes that burn and often waste a lot of energy.

Question 8

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

Accepted Answer

A) Carlos will keep all of the money for himself. 
B) Carlos will give all of the money to Darla. 
C) Carlos will split the money evenly with Darla. 
D) Carlos will split the money, keeping a little more than half for himself. 
A) Carlos will keep all of the money for himself. 
B) Carlos will give all of the money to Darla. 
C) Carlos will split the money evenly with Darla. 
D) Carlos will split the money, keeping a little more than half for himself.

Question 9

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Accepted Answer

A) True 
 B)False

Question 10

Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite dessert.Despite the fact that he would enjoy the flavor of the tiramisu the same amount ever y time, Josh only buys it when others are having dessert and never buys it if he would be the only one having dessert.Behavioral economists would say that Josh's decision is affected by

Accepted Answer

A) the availability heuristic. 
B) confirmation biases. 
C) framing effects. 
D) the self-serving bias. 
A) the availability heuristic. 
B) confirmation biases. 
C) framing effects. 
D) the self-serving bias.

Question 11

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Accepted Answer

A) Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government. 
B) Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors. 
C) There is no real difference; behavioral economics just studies more intently how the rational decision-making process works. 
D) Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does. 
A) Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government. 
B) Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors. 
C) There is no real difference; behavioral economics just studies more intently how the rational decision-making process works. 
D) Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does.

Question 12

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Accepted Answer

A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias. 
A) confirmation bias. 
B) framing effect. 
C) hindsight bias. 
D) self-serving bias.

Question 13

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

Accepted Answer

A) There is little difference, as fairness considerations lead to similar splits of the money in both games. 
B) The dictator game tends to result in a more even split of the money. 
C) The ultimatum game tends to result in a more even split of the money. 
D) Self-interest is revealed more strongly in the ultimatum game than in the dictator game. 
A) There is little difference, as fairness considerations lead to similar splits of the money in both games. 
B) The dictator game tends to result in a more even split of the money. 
C) The ultimatum game tends to result in a more even split of the money. 
D) Self-interest is revealed more strongly in the ultimatum game than in the dictator game.

Question 14

According to the concept of framing effects,

Accepted Answer

A) advertising power is limited because of the inability of firms to change consumers' perspectives. 
B) all people will assign the same utility to a given situation, regardless of their previous status quo. 
C) whether a new situation is viewed as a gain or a loss depends on one's starting position. 
D) firms should never raise prices or reduce wages. 
A) advertising power is limited because of the inability of firms to change consumers' perspectives. 
B) all people will assign the same utility to a given situation, regardless of their previous status quo. 
C) whether a new situation is viewed as a gain or a loss depends on one's starting position. 
D) firms should never raise prices or reduce wages.

Question 15

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Accepted Answer

A) framing. 
B) mental accounting. 
C) anchoring. 
D) the endowment effect. 
A) framing. 
B) mental accounting. 
C) anchoring. 
D) the endowment effect.

Question 16

Suppose that Dair y Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving).According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

Accepted Answer

A) It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B) It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C) It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D) It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising. 
A) It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. 
B) It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. 
C) It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. 
D) It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.

Question 17

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Accepted Answer

A) True 
 B)False

Question 18

Heuristics generally help people make faster decisions.

Accepted Answer

A) True 
 B)False

Question 19

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Accepted Answer

A) price changes. 
B) financial incentives. 
C) firms' profits. 
D) uncertainty and fairness. 
A) price changes. 
B) financial incentives. 
C) firms' profits. 
D) uncertainty and fairness.

Question 20

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Accepted Answer

A) anchoring effect. 
B) mental accounting effect. 
C) status quo bias. 
D) confirmation bias. 
A) anchoring effect. 
B) mental accounting effect. 
C) status quo bias. 
D) confirmation bias.

Exam 8: Behavioral Economics

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

(Consider This) The hedonic treadmill refers to a phenomenon where

Behavioral economics assumes that people are

"Time inconsistency" refers to the

"Heuristics" used by the human brain refer to the

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

According to the concept of framing effects,

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Heuristics generally help people make faster decisions.

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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