Question 1

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Accepted Answer

A) the price of protein supplements. has to fall. 
B) the price of sports magazines has to fall. 
C) the price of sports magazines has to rise. 
D) Since Avner is maximizing his utility, nothing can change the consumption of sports magazines. 
A) the price of protein supplements. has to fall. 
B) the price of sports magazines has to fall. 
C) the price of sports magazines has to rise. 
D) Since Avner is maximizing his utility, nothing can change the consumption of sports magazines.

Question 2

Figure 8.1
   
Note: a hoagie is essentially a submarine sandwich.
-Refer to Figure 8.1.Which of the following statements is true?

Accepted Answer

A) Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies. 
B) Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Quantity Q₀ could be a utility-maximizing choice if the price is $5.75, but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes. 
D) Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model. 
A) Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies. 
B) Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Quantity Q₀ could be a utility-maximizing choice if the price is $5.75, but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes. 
D) Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model.

Question 3

Most film processing companies have 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 do this knowing that most customers do not ask for refunds.This is 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 4

The demand curve for an inferior good can never be downward-sloping.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following demonstrates the endowment effect?

Accepted Answer

A) Whelan inherits a cottage in Cape Breton from his grandfather and is unwilling to sell it for sentimental reasons. 
B) Benedict Cumberbatch commands a premium in the movie industry because he is endowed with dashing looks. 
C) Isabella was not willing to part with her "Benedict Cumberbatch" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster. 
D) If you received a good as a gift, you are less likely to attach a monetary value to the good. 
A) Whelan inherits a cottage in Cape Breton from his grandfather and is unwilling to sell it for sentimental reasons. 
B) Benedict Cumberbatch commands a premium in the movie industry because he is endowed with dashing looks. 
C) Isabella was not willing to part with her "Benedict Cumberbatch" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster. 
D) If you received a good as a gift, you are less likely to attach a monetary value to the good.

Question 6

Figure 8.6
   
Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 8.6.
-Refer to Figure 8.6.Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged.The income effect of this price change is represented by the movement from

Accepted Answer

A)  A to B. 
B)  B to C. 
C) D to B 
D) D to C. 
A)  A to B. 
B)  B to C. 
C) D to B 
D) D to C.

Question 7

What is an indifference curve?

Accepted Answer

A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. 
B) It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility. 
C) It is a curve that shows ranks a consumer's preference for various consumption bundles. 
D) It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles. 
A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. 
B) It is a curve that shows the combinations of consumption bundles that gives the consumer the same utility. 
C) It is a curve that shows ranks a consumer's preference for various consumption bundles. 
D) It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.

Question 8

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Accepted Answer

A) True 
 B)False

Question 9

After getting an A on your economics exam, you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility, or (b)the enchiladas for $15 which gives you 195 units of utility?

Accepted Answer

You should buy the chimichanga

Question 10

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in 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

Question 11

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

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 12

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of 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 cappuccino 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 cappuccino 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 / p

Question 13

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 result 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 result from a decrease in purchasing power.

Question 14

Aisha and Debbie both purchase milk and bread at the same Quik Mart.They have different tastes for milk and bread and different incomes.They both buy some milk and some bread, but they buy considerably different quantities of the two goods.Which of the following statements is true, given that Aisha and Debbie are utility-maximizers?

Accepted Answer

A) In equilibrium, their marginal rate of substitution between milk and bread is the same. 
B) In equilibrium, their marginal rate of substitution between milk and bread is higher for the person with the higher income. 
C) In equilibrium, the marginal rate of substitution between milk and bread is greater for the person who prefers milk more than bread. 
D) No statement can be made about their respective marginal rates of substitution without their budget constraint/indifference curve diagrams. 
A) In equilibrium, their marginal rate of substitution between milk and bread is the same. 
B) In equilibrium, their marginal rate of substitution between milk and bread is higher for the person with the higher income. 
C) In equilibrium, the marginal rate of substitution between milk and bread is greater for the person who prefers milk more than bread. 
D) No statement can be made about their respective marginal rates of substitution without their budget constraint/indifference curve diagrams.

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

A significant downside to network externalities is that

Accepted Answer

A) there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B) firms may network with unethical suppliers or distributors. 
C) the costs of hiring celebrity endorsements may be very high. 
D) there may be large switching costs to firms changing technologies. 
A) there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B) firms may network with unethical suppliers or distributors. 
C) the costs of hiring celebrity endorsements may be very high. 
D) there may be large switching costs to firms changing technologies.

Question 17

If the price of lattes, a normal good you enjoy, falls,

Accepted Answer

A) the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B) both the income and substitution effects lead you to buy more lattes. 
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
A) the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B) both the income and substitution effects lead you to buy more lattes. 
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased.

Question 18

What is marginal utility and what is the law of diminishing marginal utility?

Accepted Answer

Marginal utility is the change in total

Question 19

What is the endowment effect?

Accepted Answer

A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it 
D) the tendency of firms to use celebrities endowed with good looks to promote their products 
A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it 
D) the tendency of firms to use celebrities endowed with good looks to promote their products

Question 20

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

A) True 
 B)False

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Figure 8.1 Note: a hoagie is essentially a submarine sandwich. -Refer to Figure 8.1.Which of the following statements is true?

Most film processing companies have 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 do this knowing that most customers do not ask for refunds.This is an example of consumers

The demand curve for an inferior good can never be downward-sloping.

Which of the following demonstrates the endowment effect?

What is an indifference curve?

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

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

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

The income effect of an increase in the price of salmon

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.

A significant downside to network externalities is that

If the price of lattes, a normal good you enjoy, falls,

What is marginal utility and what is the law of diminishing marginal utility?

What is the endowment effect?

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

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

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters

Exam 8: Consumer Choice and Behavioral Economics

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Figure 8.1 Note: a hoagie is essentially a submarine sandwich. -Refer to Figure 8.1.Which of the following statements is true?

Most film processing companies have 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 do this knowing that most customers do not ask for refunds.This is an example of consumers

The demand curve for an inferior good can never be downward-sloping.

Which of the following demonstrates the endowment effect?

What is an indifference curve?

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

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

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

The income effect of an increase in the price of salmon

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.

A significant downside to network externalities is that

If the price of lattes, a normal good you enjoy, falls,

What is marginal utility and what is the law of diminishing marginal utility?

What is the endowment effect?

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

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

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

The Markets for Labour and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Pricing Strategy

Firms, the Stock Market, and Corporate Governance

Filters