Question 1

What is the marginal rate of substitution?

Accepted Answer

A) the price ratio 
B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market 
C) the rate at which the consumer is willing to trade one good for another so that she increases her utility 
D) the rate at which the consumer is willing to trade one good for another without any loss in utility 
A) the price ratio 
B) the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market 
C) the rate at which the consumer is willing to trade one good for another so that she increases her utility 
D) the rate at which the consumer is willing to trade one good for another without any loss in utility

Question 2

Which of the following is not a common mistake made by consumers?

Accepted Answer

A) the failure to take into account the implicit costs of an activity 
B) the failure to ignore sunk costs 
C) being overly optimistic about their future behavior 
D) being overly pessimistic about their future behavior 
A) the failure to take into account the implicit costs of an activity 
B) the failure to ignore sunk costs 
C) being overly optimistic about their future behavior 
D) being overly pessimistic about their future behavior

Question 3

Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game.He chooses Jasmine to be the allocator and Cassandra to be the recipient.He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra.If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money.If Cassandra decides to reject her allocation, neither student gets to keep the money.How much will each student end up with if each student acts as if fairness is the most important consideration? How much will each student end up with if only Cassandra acts as if fairness is the most important consideration? How much will each student end up with if neither student cares about fairness?

Accepted Answer

If both students care about fairness, ea

Question 4

In 2012 Bon Jovi announced its "Because we can" tour would make 1,000 ticket available at the "fan friendly" price of 19.95 before service fees at all of their shows.The band has made tickets priced below $20 a feature of all their recent concerts.These tickets sold quickly indicating demand was larger than supply at the price of $19.95.Why might this pricing strategy not mean lower profits for the band?

Accepted Answer

Tickets to Bon Jovi's concerts consisten

Question 5

If a consumer receives 22 units of marginal utility for consuming the first can of pop, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Accepted Answer

A) 57 utility units. 
B) 35 utility units. 
C) 15 utility units. 
D) unknown as more information is needed to determine the answer. 
A) 57 utility units. 
B) 35 utility units. 
C) 15 utility units. 
D) unknown as more information is needed to determine the answer.

Question 6

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

Accepted Answer

A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases. 
A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases.

Question 7

Table 8.2
   
Table 8.2 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 8.2.Holding prices constant, when Keira's income changed from $18 to $23, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases. 
A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 8

Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects

Accepted Answer

A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases. 
A) work in the same direction to increase quantity demanded. 
B) work in the same direction to decrease quantity demanded. 
C) work in opposite directions and quantity demanded increases. 
D) work in opposite directions and quantity demanded decreases.

Question 9

Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away.
Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?

Accepted Answer

A) Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 
B) Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 
C) in either scenario if I think a $15 savings is worth the 20-minute trip 
D) in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
E) C and D are correct answers. 
A) Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 
B) Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 
C) in either scenario if I think a $15 savings is worth the 20-minute trip 
D) in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
E) C and D are correct answers.

Question 10

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

Accepted Answer

A) consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry. 
B) a government-imposed price ceiling on airline ticket prices left the airlines no other way to cover the increase in costs. 
C) adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets. 
D) consumers see it as fair for firms to raise prices after an increase in costs. 
A) consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry. 
B) a government-imposed price ceiling on airline ticket prices left the airlines no other way to cover the increase in costs. 
C) adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets. 
D) consumers see it as fair for firms to raise prices after an increase in costs.

Question 11

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

Accepted Answer

A) True 
 B)False

Question 12

Sunk costs

Accepted Answer

A) are costs associated with repairing something you already own. 
B) are important for optimal decision making. 
C) are costs that have already been paid and cannot be recaptured in any significant way. 
D) are costs that firms sink into marketing. 
A) are costs associated with repairing something you already own. 
B) are important for optimal decision making. 
C) are costs that have already been paid and cannot be recaptured in any significant way. 
D) are costs that firms sink into marketing.

Question 13

If your total satisfaction increases when you consume another unit, your marginal utility must be

Accepted Answer

A) increasing. 
B) decreasing. 
C) negative. 
D) positive. 
A) increasing. 
B) decreasing. 
C) negative. 
D) positive.

Question 14

The average price of gasoline in your neighbourhood is $1.30 per litre.Your neighbour, Diana tells you that you can "save a lot" by frequenting a gas station 30 kilometers outside your neighbourhood where the price of gasoline is $1.15 per litre 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 15

One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Accepted Answer

A) more utility 
B) diminishing utility 
C) greater network externalities 
D) increased path dependency 
A) more utility 
B) diminishing utility 
C) greater network externalities 
D) increased path dependency

Question 16

Figure 8.5
  
-Refer to Figure 8.5.Which diagram demonstrates a decrease in total utility following an increase in the price of candy?

Accepted Answer

A) the movement from e to d in Panel A 
B) the movement from g to f in Panel B 
C) the movement from k to h in Panel C 
D) none of the above 
A) the movement from e to d in Panel A 
B) the movement from g to f in Panel B 
C) the movement from k to h in Panel C 
D) none of the above

Question 17

The demand curve for canned peas is downward sloping.If the price of canned peas, an inferior good, rises,

Accepted Answer

A) the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded. 
B) the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded. 
C) both the income and substitution effects reinforce each other to decrease the quantity demanded. 
D) the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas. 
A) the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded. 
B) the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded. 
C) both the income and substitution effects reinforce each other to decrease the quantity demanded. 
D) the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas.

Question 18

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Accepted Answer

A) True 
 B)False

Question 19

Figure 8.3
  
-Refer to Figure 8.3.What is the marginal rate of substitution between g and h?

Accepted Answer

A)    cookie. 
B)    cookie. 
C) 2 cookies. 
D) 3 cookies. 
A)    cookie. 
B)    cookie. 
C) 2 cookies. 
D) 3 cookies.

Question 20

The slope of an indifference curve

Accepted Answer

A) is calculated by dividing the price of good on the vertical axis by price of the good on the horizontal axis. 
B) measures total utility. 
C) measures the marginal rate of substitution between the two goods in question. 
D) is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis. 
A) is calculated by dividing the price of good on the vertical axis by price of the good on the horizontal axis. 
B) measures total utility. 
C) measures the marginal rate of substitution between the two goods in question. 
D) is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis.

What is the marginal rate of substitution?

Which of the following is not a common mistake made by consumers?

If a consumer receives 22 units of marginal utility for consuming the first can of pop, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

Sunk costs

If your total satisfaction increases when you consume another unit, your marginal utility must be

One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Figure 8.5 -Refer to Figure 8.5.Which diagram demonstrates a decrease in total utility following an increase in the price of candy?

The demand curve for canned peas is downward sloping.If the price of canned peas, an inferior good, rises,

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Figure 8.3 -Refer to Figure 8.3.What is the marginal rate of substitution between g and h?

The slope of an indifference curve

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

What is the marginal rate of substitution?

Which of the following is not a common mistake made by consumers?

If a consumer receives 22 units of marginal utility for consuming the first can of pop, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

Sunk costs

If your total satisfaction increases when you consume another unit, your marginal utility must be

One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Figure 8.5 -Refer to Figure 8.5.Which diagram demonstrates a decrease in total utility following an increase in the price of candy?

The demand curve for canned peas is downward sloping.If the price of canned peas, an inferior good, rises,

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Figure 8.3 -Refer to Figure 8.3.What is the marginal rate of substitution between g and h?

The slope of an indifference curve

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