Question 1

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

Accepted Answer

A) budget constraint shifts inward parallel to the original budget constraint. 
B) budget constraint shifts outward parallel to the original budget constraint. 
C) indifference curves shift outward away from the origin. 
D) indifference curves become flatter. 
A) budget constraint shifts inward parallel to the original budget constraint. 
B) budget constraint shifts outward parallel to the original budget constraint. 
C) indifference curves shift outward away from the origin. 
D) indifference curves become flatter.

Question 2

What happens to the absolute value of the marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains constant. 
D) It could increase or decrease. 
A) It increases. 
B) It decreases. 
C) It remains constant. 
D) It could increase or decrease.

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

A) Petra's utility from her second apple was less than her satisfaction from her first orange. 
B) Hudson enjoyed his second slice of pizza more than his first. 
C) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant. 
A) Petra's utility from her second apple was less than her satisfaction from her first orange. 
B) Hudson enjoyed his second slice of pizza more than his first. 
C) Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D) Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Question 5

An advantage of Microsoft Windows is its compatibility with the widest range of hardware and software.The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users.Which situation best describes this scenario?

Accepted Answer

A) endowment effects 
B) endorsement effects 
C) economies of scale 
D) network externalities 
A) endowment effects 
B) endorsement effects 
C) economies of scale 
D) network externalities

Question 6

The endowment effect suggests that that people

Accepted Answer

A) have a strong attachment to their property, regardless of whether they paid to acquire it. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways to distort market prices. 
A) have a strong attachment to their property, regardless of whether they paid to acquire it. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways to distort market prices.

Question 7

A sunk cost is a cost that has already been paid and cannot be recovered.

Accepted Answer

A) True 
 B)False

Question 8

Why do indifference curves have a negative slope?

Accepted Answer

A) because consumers take market prices as given 
B) because consumers face a budget constraint 
C) because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D) because scarcity implies that it is not possible to consume more of one good without giving up some of the other 
A) because consumers take market prices as given 
B) because consumers face a budget constraint 
C) because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D) because scarcity implies that it is not possible to consume more of one good without giving up some of the other

Question 9

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found

Accepted Answer

A) there is no convincing evidence that the alternative technologies were superior. 
B) consumers sometimes do become locked into the use of products with inferior technologies. 
C) that in all of these cases network externalities resulted in market failure. 
D) that consumers use products with inferior technologies when their prices are lower than products with superior technologies. 
A) there is no convincing evidence that the alternative technologies were superior. 
B) consumers sometimes do become locked into the use of products with inferior technologies. 
C) that in all of these cases network externalities resulted in market failure. 
D) that consumers use products with inferior technologies when their prices are lower than products with superior technologies.

Question 10

Figure 10-8
   
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 10-8.
-Refer to Figure 10-8.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?

Accepted Answer

A) still remains at bundle A 
B) bundle B 
C) bundle C 
D) bundle D 
A) still remains at bundle A 
B) bundle B 
C) bundle C 
D) bundle D

Question 11

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, the $200,000 he spent on his education

Accepted Answer

A) should be ignored since it represents a sunk cost. 
B) should be considered since it is money he has spent and needs to recoup. 
C) should be ignored only if Kim can earn more than $200,000 by running his Website. 
D) should be considered since it is money he could have used to invest in his Website. 
A) should be ignored since it represents a sunk cost. 
B) should be considered since it is money he has spent and needs to recoup. 
C) should be ignored only if Kim can earn more than $200,000 by running his Website. 
D) should be considered since it is money he could have used to invest in his Website.

Question 12

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets, and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are evidence of

Accepted Answer

A) the high value fans place on watching the Super Bowl in person, rather than on television. 
B) the failure of consumers to take into account nonmonetary opportunity costs. 
C) the failure of consumers to ignore sunk costs. 
D) consumers being overly optimistic about their future behavior. 
A) the high value fans place on watching the Super Bowl in person, rather than on television. 
B) the failure of consumers to take into account nonmonetary opportunity costs. 
C) the failure of consumers to ignore sunk costs. 
D) consumers being overly optimistic about their future behavior.

Question 13

A network externality occurs when

Accepted Answer

A) there is production cost savings from being networked with suppliers. 
B) there is production cost savings from being networked with buyers. 
C) the usefulness of a good is affected by how many other people use the good. 
D) the usefulness of a good is affected by celebrities who use the good. 
A) there is production cost savings from being networked with suppliers. 
B) there is production cost savings from being networked with buyers. 
C) the usefulness of a good is affected by how many other people use the good. 
D) the usefulness of a good is affected by celebrities who use the good.

Question 14

Consider the following factors:
A.culture
B.religion
C.customs
D.prices
E.income
Which of the factors above are likely to influence the choices consumers make?

Accepted Answer

A) a, d, and e only 
B) all the factors except b 
C) all the factors except c 
D) d and e only 
E) all the factors listed 
A) a, d, and e only 
B) all the factors except b 
C) all the factors except c 
D) d and e only 
E) all the factors listed

Question 15

The demand curve for a luxury good is upward sloping.

Accepted Answer

A) True 
 B)False

Question 16

What does the marginal rate of substitution measure?

Accepted Answer

A) It measures the rate at which a consumer must give up one good to purchase another good. 
B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C) It measures the change in utility from consuming one additional unit of a good. 
D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant. 
A) It measures the rate at which a consumer must give up one good to purchase another good. 
B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C) It measures the change in utility from consuming one additional unit of a good. 
D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

Question 17

Music writer Anthony Kuzminski praised the late rock star Tom Petty in a 2007 article in the online Unrated Magazine.Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude.He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs.Petty could charge more, but he doesn't see the point.He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices.He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers")concerts that were less than market clearing prices.
Source: Anthony Kuzminski, "Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/

Accepted Answer

Tickets to Tom Petty's concerts consiste

Question 18

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Accepted Answer

A) of their work with experimental economics. 
B) they discovered the first example of a Giffen good. 
C) of their work on the substitution and income effects of price changes. 
D) they proved that external economies would lead to market failure. 
A) of their work with experimental economics. 
B) they discovered the first example of a Giffen good. 
C) of their work on the substitution and income effects of price changes. 
D) they proved that external economies would lead to market failure.

Question 19

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behavior?

Accepted Answer

A) Some health club members suffer minor injuries that prevent them from working out. 
B) Some people are overly optimistic about their future behavior. 
C) Some people fail to treat their membership fees as sunk costs. 
D) Some members receive utility from activities they believe are popular. 
A) Some health club members suffer minor injuries that prevent them from working out. 
B) Some people are overly optimistic about their future behavior. 
C) Some people fail to treat their membership fees as sunk costs. 
D) Some members receive utility from activities they believe are popular.

Question 20

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Accepted Answer

A) True 
 B)False

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

What happens to the absolute value of the marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?

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

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

The endowment effect suggests that that people

A sunk cost is a cost that has already been paid and cannot be recovered.

Why do indifference curves have a negative slope?

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found

A network externality occurs when

Consider the following factors: A.culture B.religion C.customs D.prices E.income Which of the factors above are likely to influence the choices consumers make?

The demand curve for a luxury good is upward sloping.

What does the marginal rate of substitution measure?

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behavior?

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

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Exam 10: Consumer Choice and Behavioral Economics

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

What happens to the absolute value of the marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?

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

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

The endowment effect suggests that that people

A sunk cost is a cost that has already been paid and cannot be recovered.

Why do indifference curves have a negative slope?

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found

A network externality occurs when

Consider the following factors: A.culture B.religion C.customs D.prices E.income Which of the factors above are likely to influence the choices consumers make?

The demand curve for a luxury good is upward sloping.

What does the marginal rate of substitution measure?

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behavior?

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

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

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Filters