Exam 8: Consumer Choice and Behavioral Economics

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, her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

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

Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education.In making his decision, Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a

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

Figure 8.4 -Refer to Figure 8.4.Which of the following statements is true?

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 rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Many celebrities are paid to endorse products, but celebrity endorsements do come with risks.Once a firm is associated with a celebrity, consumers associate the product with the celebrity.This association can turn negative if the celebrity gets arrested or becomes associated with an embarrassing scandal.Should a company whose celebrity endorser was just arrested be guided by the amount it has already poured into making ads featuring the celebrity in its decision about whether or not to cancel the ad campaign?

Figure 8.5 -Refer to Figure 8.5.A change in income is shown in

A good is path dependent when

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

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

A construction project in Member of Parliament Slick's district is unfinished.Slick has asked that the next budget include funds to complete the project, despite a report by an independent agency that the project is a waste of taxpayer money.Slick's project is a bridge that crosses a river between two cities in his riding.The press has criticized Slick and dubbed the project "a bridge too far" since another bridge, located closer to the same two cities Slick's bridge will connect, already exists and can accommodate all traffic between the two cities.Slick argues that if the bridge project is not completed, the $50 million already spent will have been wasted.Is Slick's argument economically rational? Explain your answer.

Suppose the consumer's income increases while the prices of the goods remain constant.Then the

The law of diminishing marginal utility states that

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is

If preferences are transitive, indifference curves

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

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 substitution effect of this price change is represented by the movement from

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

Figure 8.5 -Refer to Figure 8.5.A change in the price of popcorn only is shown in