Question 1

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Accepted Answer

A) a utility curve. 
B) an indifference curve. 
C) a preference curve. 
D) a demand curve. 
A) a utility curve. 
B) an indifference curve. 
C) a preference curve. 
D) a demand curve.

Question 2

Assume that Anne has $300 to spend on DVDs and CDs.Her optimal consumption of DVDs and CDs is illustrated by a tangency between a budget line and an indifference curve.Now assume that the price of CDs rises but the price of DVDs falls.How can you show that Anne is made better off by these price changes?

Accepted Answer

A) Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs. 
A) Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs.

Question 3

Consumers maximize total utility within their budget constraint by

Accepted Answer

A) buying the cheapest goods they can find. 
B) buying whatever they like the best. 
C) buying the goods with the largest marginal utility per dollar spent. 
D) spending the same dollar amount for each good. 
A) buying the cheapest goods they can find. 
B) buying whatever they like the best. 
C) buying the goods with the largest marginal utility per dollar spent. 
D) spending the same dollar amount for each good.

Question 4

In a survey of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Accepted Answer

A) go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B) raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C) sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D) remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area. 
A) go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. 
B) raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. 
C) sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. 
D) remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there were no other hardware stores in the same area.

Question 5

Consider a downward-sloping demand curve.When the price of an inferior 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 6

The only Giffen goods that have been identified so far in the real world are luxury goods.

Accepted Answer

A) True 
 B)False

Question 7

The substitution effect of an increase in the price of peaches is

Accepted Answer

A) the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) the change in the demand for nectarines (a substitute good)that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C) the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D) the change in the demand for peaches that results when the price of peaches increases. 
A) the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) the change in the demand for nectarines (a substitute good)that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C) the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D) the change in the demand for peaches that results when the price of peaches increases.

Question 8

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Accepted Answer

A) the income effect would have to be larger than the substitution effect. 
B) the income effect would have to be smaller than the substitution effect. 
C) the income effect would have to be equal to the substitution effect. 
D) the income effect and the substitution effect would have to be nonexistent. 
A) the income effect would have to be larger than the substitution effect. 
B) the income effect would have to be smaller than the substitution effect. 
C) the income effect would have to be equal to the substitution effect. 
D) the income effect and the substitution effect would have to be nonexistent.

Question 9

Which of the following correctly describes the result of a price increase for an inferior good?

Accepted Answer

A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease. 
A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease.

Question 10

Table 10-5
  
-Refer to Table 10-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub)sandwiches and tacos.Assume that the price of a sub sandwich is $4 and the price of a taco is $2.When Harry's income is $14, he buys two Italian sub sandwiches and three tacos.The last column lists the values of the marginal utility per dollar for tacos when the price of a taco decreases to $1.Complete this statement: As a result of the change in price, the marginal utility of each taco Harry consumes increases and

Accepted Answer

A) the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B) the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good, and fewer tacos if they are an inferior good. 
C) the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D) the substitution effect will cause Harry to buy fewer tacos. 
A) the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B) the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good, and fewer tacos if they are an inferior good. 
C) the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D) the substitution effect will cause Harry to buy fewer tacos.

Question 11

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions:
Scenario A: "Imagine that you have decided to see a play and paid the admission price of $10 per ticket.As you enter the theater you discover that you have lost the ticket.The seat was not marked and the ticket cannot be recovered.Would you pay $10 for another ticket?"
Scenario B: "Imagine that you have decided to see a play where admission is $10 per ticket.As you enter the theater you discover that you have lost a $10 bill.Would you still pay $10 for a ticket for the play?"
As long as additional tickets are available, there's no meaningful difference between losing $10 in cash before buying a ticket, and losing the $10 ticket after buying it.In both cases, you are out $10.Yet, far more subjects (88 percent)in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A, only 46 percent of the subjects say they would be willing to spend another $10 to see the play.
Which of the following is the best explanation for the results of the experiment?

Accepted Answer

A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B. 
A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B.

Question 12

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Accepted Answer

A) network externalities 
B) the satisfaction people derive by being viewed as "fashionable" 
C) cost-effective way to gather information about a product 
D) differences in tastes and preferences 
A) network externalities 
B) the satisfaction people derive by being viewed as "fashionable" 
C) cost-effective way to gather information about a product 
D) differences in tastes and preferences

Question 13

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.The price of a used novel = $4 and the price of an audio book = $8.If the marginal utility of the last novel was 32 units of utility (utils)what was the marginal utility of the last audio book purchased?

Accepted Answer

A) 2 utils 
B) 12 utils 
C) 16 utils 
D) 64 utils 
A) 2 utils 
B) 12 utils 
C) 16 utils 
D) 64 utils

Question 14

Economists assume that the goal of consumers is to

Accepted Answer

A) do as little work as possible to survive. 
B) make themselves as well off as possible. 
C) spend all their income. 
D) consume as much as possible. 
A) do as little work as possible to survive. 
B) make themselves as well off as possible. 
C) spend all their income. 
D) consume as much as possible.

Question 15

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Accepted Answer

A) True 
 B)False

Question 16

Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?

Accepted Answer

A) He is not maximizing his utility and should buy more milkshakes. 
B) He is maximizing his utility. 
C) He is not maximizing his utility and should buy more Subway sandwiches. 
D) He is not maximizing his utility because he is not spending all of his income. 
A) He is not maximizing his utility and should buy more milkshakes. 
B) He is maximizing his utility. 
C) He is not maximizing his utility and should buy more Subway sandwiches. 
D) He is not maximizing his utility because he is not spending all of his income.

Question 17

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

Accepted Answer

A) 25 utils. 
B) 20 utils. 
C) 5 utils. 
D) unknown as more information is needed to determine the answer. 
A) 25 utils. 
B) 20 utils. 
C) 5 utils. 
D) unknown as more information is needed to determine the answer.

Question 18

Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time.In less than a week she discovered that the shoes were uncomfortable.Grace went back to wearing her old pair and stashed away the new pair.When asked by her boss, Mme.Ramotswe, why does she not simply give away the new pair, she said: "But I paid so much for them." Grace's behavior

Accepted Answer

A) is rational: she should not discard a valuable item. 
B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C) supports the endowment effect which states that ownership of an item makes it more valuable. 
D) is rational because the more you pay for an item the more valuable it is. 
A) is rational: she should not discard a valuable item. 
B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C) supports the endowment effect which states that ownership of an item makes it more valuable. 
D) is rational because the more you pay for an item the more valuable it is.

Question 19

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Accepted Answer

A) network externalities 
B) market failure 
C) diminishing marginal utility 
D) the income effect of a price change 
A) network externalities 
B) market failure 
C) diminishing marginal utility 
D) the income effect of a price change

Question 20

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.

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Consumers maximize total utility within their budget constraint by

In a survey of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

The substitution effect of an increase in the price of peaches is

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Which of the following correctly describes the result of a price increase for an inferior good?

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.The price of a used novel = $4 and the price of an audio book = $8.If the marginal utility of the last novel was 32 units of utility (utils)what was the marginal utility of the last audio book purchased?

Economists assume that the goal of consumers is to

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Sunk costs

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

Exam 10: Consumer Choice and Behavioral Economics

A curve that shows combinations of consumption bundles that give a consumer the same utility is called

Consumers maximize total utility within their budget constraint by

In a survey of consumers, Daniel Kahneman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

The substitution effect of an increase in the price of peaches is

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Which of the following correctly describes the result of a price increase for an inferior good?

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.The price of a used novel = $4 and the price of an audio book = $8.If the marginal utility of the last novel was 32 units of utility (utils)what was the marginal utility of the last audio book purchased?

Economists assume that the goal of consumers is to

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Sunk costs

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