Question 1

The neoclassical economists' "invisible hand" of the market is driven by people's

Accepted Answer

A) sense of fairness. 
B) generosity. 
C) self-interest. 
D) time inconsistency. 
A) sense of fairness. 
B) generosity. 
C) self-interest. 
D) time inconsistency.

Question 2

One major consequence of the overconfidence effect is that

Accepted Answer

A) some people cannot correct a personal trait that might be causing them to fail in many ventures. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) bad decisions can be made because people will act based on irrelevant information. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments. 
A) some people cannot correct a personal trait that might be causing them to fail in many ventures. 
B) someone could persist in pursuing a failed policy despite overwhelming evidence of the failure. 
C) bad decisions can be made because people will act based on irrelevant information. 
D) some people may wrongly believe in their forecasting ability to predict future outcomes of risky investments.

Question 3

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health.Based on this information, a behavioral economist would expect Susie to

Accepted Answer

A) carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. 
B) eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. 
C) give awa y most of her sugary treats in an effort to resist temptation. 
D) compute the caloric intake and calculate how many hours of exercise would be needed to burn off the calories from each treat. 
A) carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. 
B) eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. 
C) give awa y most of her sugary treats in an effort to resist temptation. 
D) compute the caloric intake and calculate how many hours of exercise would be needed to burn off the calories from each treat.

Question 4

The idea of "nudging" people into certain choices is one major contribution of behavioral economics to policy making.

Accepted Answer

A) True 
 B)False

Question 5

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making.

Accepted Answer

A) True 
 B)False

Question 6

People who engage in mental accounting are more likely to purchase overpriced warranties.

Accepted Answer

A) True 
 B)False

Question 7

When people make decisions that go against their own interests, neoclassical economics explains this to be instances where people are

Accepted Answer

A) intentionally not maximizing their net benefit. 
B) ignorant of what their best interests are. 
C) simply incapable of making rational decisions. 
D) behaving quite rationally. 
A) intentionally not maximizing their net benefit. 
B) ignorant of what their best interests are. 
C) simply incapable of making rational decisions. 
D) behaving quite rationally.

Question 8

Prospect theory is based on behavioral economists' understanding of how people

Accepted Answer

A) react to good things (or gains) and bad (or losses). 
B) make predictions about their future income. 
C) search for job prospects or business prospects. 
D) behave under stressful conditions. 
A) react to good things (or gains) and bad (or losses). 
B) make predictions about their future income. 
C) search for job prospects or business prospects. 
D) behave under stressful conditions.

Question 9

When economists talk about a "new normal" in terms of conditions in the production and employment sectors, they are suggesting a change in people's perceptions influenced by the

Accepted Answer

A) hindsight bias. 
B) confirmation bias. 
C) availability heuristic. 
D) framing effect. 
A) hindsight bias. 
B) confirmation bias. 
C) availability heuristic. 
D) framing effect.

Question 10

(Consider This) According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales?

Accepted Answer

A) Firms have substantially cut their advertising budgets to focus more on product quality. 
B) Firms have substantially increased their advertising budgets in order to hit the spending threshold necessar y to affect sales. 
C) Firms have substantially cut their advertising budgets to focus more on new product development. 
D) Firms have conducted a lot of simple experiments to determine what might increase sales. 
A) Firms have substantially cut their advertising budgets to focus more on product quality. 
B) Firms have substantially increased their advertising budgets in order to hit the spending threshold necessar y to affect sales. 
C) Firms have substantially cut their advertising budgets to focus more on new product development. 
D) Firms have conducted a lot of simple experiments to determine what might increase sales.

Question 11

Which of the following statements best reflects how a behavioral economist views individual decision making?

Accepted Answer

A) Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information. 
B) Kara carefully calculates and weighs the expected benefits and costs of ever y option before making a decision. 
C) Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests. 
D) Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations. 
A) Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information. 
B) Kara carefully calculates and weighs the expected benefits and costs of ever y option before making a decision. 
C) Alyssa may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests. 
D) Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

Question 12

John's friend Rosika won a major lottery jackpot.Seeing this, John goes out and buys a bunch of lotter y tickets despite struggling financially and even though he knows that millions don't win and that the odds of winning are infinitesimal.John's decision to buy the lotter y tickets under these circumstances would best be explained by the

Accepted Answer

A) hindsight bias. 
B) self-serving bias. 
C) confirmation bias. 
D) availability heuristic. 
A) hindsight bias. 
B) self-serving bias. 
C) confirmation bias. 
D) availability heuristic.

Question 13

A key difference between neoclassical economics and behavioral economics is that in behavioral economics, context affects preferences.

Accepted Answer

A) True 
 B)False

Question 14

Firms would rather shrink package sizes than raise prices because consumers will feel less of a loss from the change in package size.

Accepted Answer

A) True 
 B)False

Question 15

Heuristics can be exploited to lead people to positive outcomes.

Accepted Answer

A) True 
 B)False

Question 16

Prospect theory and the work of behavioral economists confirm that consumers are economically rational.

Accepted Answer

A) True 
 B)False

Question 17

Because of "mental accounting,"

Accepted Answer

A) people are better able to process price changes than changes in product sizes. 
B) people tend to be less risk averse. 
C) people pay too little on their monthly credit card bills. 
D) people isolate purchases and sometimes make irrational decisions. 
A) people are better able to process price changes than changes in product sizes. 
B) people tend to be less risk averse. 
C) people pay too little on their monthly credit card bills. 
D) people isolate purchases and sometimes make irrational decisions.

Question 18

The threat of rejection in market transactions

Accepted Answer

A) leads to higher prices, as sellers try to cover possible losses. 
B) leads to better products and lower prices for consumers. 
C) leads to less cooperation between buyers and sellers. 
D) does all of these. 
A) leads to higher prices, as sellers try to cover possible losses. 
B) leads to better products and lower prices for consumers. 
C) leads to less cooperation between buyers and sellers. 
D) does all of these.

Question 19

Placement of goods in grocer y and other retail stores is often done with the objective of encouraging impulse buying.

Accepted Answer

A) True 
 B)False

Question 20

One implication of the phenomenon described by economist Richard Easterlin as the "hedonic treadmill" is that

Accepted Answer

A) people who consume more goods and services are happier than those who consume less. 
B) people can only become happier if they are consuming more and more. 
C) there is a threshold of consumption that one must cross before one can be happy. 
D) we can combine the happiness of different individuals to get "total happiness." 
A) people who consume more goods and services are happier than those who consume less. 
B) people can only become happier if they are consuming more and more. 
C) there is a threshold of consumption that one must cross before one can be happy. 
D) we can combine the happiness of different individuals to get "total happiness."

Exam 8: Behavioral Economics

The neoclassical economists' "invisible hand" of the market is driven by people's

One major consequence of the overconfidence effect is that

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health.Based on this information, a behavioral economist would expect Susie to

The idea of "nudging" people into certain choices is one major contribution of behavioral economics to policy making.

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making.

People who engage in mental accounting are more likely to purchase overpriced warranties.

When people make decisions that go against their own interests, neoclassical economics explains this to be instances where people are

Prospect theory is based on behavioral economists' understanding of how people

When economists talk about a "new normal" in terms of conditions in the production and employment sectors, they are suggesting a change in people's perceptions influenced by the

(Consider This) According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales?

Which of the following statements best reflects how a behavioral economist views individual decision making?

A key difference between neoclassical economics and behavioral economics is that in behavioral economics, context affects preferences.

Firms would rather shrink package sizes than raise prices because consumers will feel less of a loss from the change in package size.

Heuristics can be exploited to lead people to positive outcomes.

Prospect theory and the work of behavioral economists confirm that consumers are economically rational.

Because of "mental accounting,"

The threat of rejection in market transactions

Placement of goods in grocer y and other retail stores is often done with the objective of encouraging impulse buying.

One implication of the phenomenon described by economist Richard Easterlin as the "hedonic treadmill" is that

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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