Question 1

The substitution effect of an increase in the price of Raisin Bran refers to

Accepted Answer

A) the decrease in the demand for Raisin Bran when its price rises. 
B) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. 
C) the fact that the higher price of Raisin Bran lowers consumers' purchasing power, holding money income constant. 
D) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran. 
A) the decrease in the demand for Raisin Bran when its price rises. 
B) the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left. 
C) the fact that the higher price of Raisin Bran lowers consumers' purchasing power, holding money income constant. 
D) the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, causes consumers to buy less Raisin Bran.

Question 2

Economists have noted that businesses of a certain type tend to congregate geographically, attracting workers with skills in those fields.This, in turn, lures more firms seeking employees with those skills.Some examples include commercial banking, software development, and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Accepted Answer

The mechanism at work is a network exter

Question 3

Identify the one statement that does not demonstrate how social effects influence consumer choice.

Accepted Answer

A) Students in an Economics class are required to purchase a textbook assigned by the professor. 
B) There is utility gained from consuming goods or services that others are consuming. 
C) Some products that people consume are determined by the social popularity of the products. 
D) Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the Internet for others to see. 
A) Students in an Economics class are required to purchase a textbook assigned by the professor. 
B) There is utility gained from consuming goods or services that others are consuming. 
C) Some products that people consume are determined by the social popularity of the products. 
D) Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the Internet for others to see.

Question 4

Figure 10-10
  
-Refer to Figure 10-10.The change in the budget constraint from BC₁ to BC₂ implies

Accepted Answer

A) the prices of DVDs and CDs have increased. 
B) income and the prices of DVDs and CDs have increased. 
C) the price of DVDs has increased and the price of CDs has decreased. 
D) the price of DVDs has decreased and the price of CDs has increased. 
A) the prices of DVDs and CDs have increased. 
B) income and the prices of DVDs and CDs have increased. 
C) the price of DVDs has increased and the price of CDs has decreased. 
D) the price of DVDs has decreased and the price of CDs has increased.

Question 5

Figure 10-3
   
Bettye Babylon does not charge admission to her arboreal estate, the Hanging Gardens. Due to space limitations, Bettye only allows 200 visitors per day at her estate. The figure represents the supply and demand for admission to the Hanging Gardens.
-Refer to Figure 10-3.At a price of ________, there is a shortage of tickets.

Accepted Answer

A) $0 
B) $10 
C) $25 
D) more than $25 
A) $0 
B) $10 
C) $25 
D) more than $25

Question 6

One reason that consumers and businesses might not act rationally is

Accepted Answer

A) it is difficult to obtain enough information about the elasticities of demand and supply. 
B) they may not realize their actions are inconsistent with their goals. 
C) consumer tastes change constantly. 
D) they do not always value fairness when they make choices. 
A) it is difficult to obtain enough information about the elasticities of demand and supply. 
B) they may not realize their actions are inconsistent with their goals. 
C) consumer tastes change constantly. 
D) they do not always value fairness when they make choices.

Question 7

All consumption bundles along a given indifference curve are equally desirable.

Accepted Answer

A) True 
 B)False

Question 8

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

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 9

In the ultimatum game, allocators usually offer recipients at least a 40 percent share of the money, and recipients almost always reject offers of less than a 10 percent share.Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers?

Accepted Answer

A) Fear of arousing outrage and abhorrence could influence economic decisions. 
B) People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C) Some people are careful not to engage in economic behavior that might offend and alienate others. 
D) Allocators can count on recipients to ignore all considerations except financial benefit. 
A) Fear of arousing outrage and abhorrence could influence economic decisions. 
B) People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C) Some people are careful not to engage in economic behavior that might offend and alienate others. 
D) Allocators can count on recipients to ignore all considerations except financial benefit.

Question 10

Marginal utility can be

Accepted Answer

A) negative. 
B) zero. 
C) positive. 
D) positive, negative, or zero. 
A) negative. 
B) zero. 
C) positive. 
D) positive, negative, or zero.

Question 11

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

Accepted Answer

A) external 
B) implicit 
C) switching 
D) marginal 
A) external 
B) implicit 
C) switching 
D) marginal

Question 12

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video.Which of the following is true?

Accepted Answer

A) The marginal utility of video rentals is negative. 
B) The marginal utility per dollar spent on books exceeds that of video rentals. 
C) The marginal utility of the last book consumed exceeds the marginal utility of the last video rental consumed. 
D) The marginal utility of the last video rental consumed exceeds the marginal utility of the last book consumed. 
A) The marginal utility of video rentals is negative. 
B) The marginal utility per dollar spent on books exceeds that of video rentals. 
C) The marginal utility of the last book consumed exceeds the marginal utility of the last video rental consumed. 
D) The marginal utility of the last video rental consumed exceeds the marginal utility of the last book consumed.

Question 13

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Accepted Answer

A) both on the characteristics of the product and on how many other people are buying the good. 
B) only on the characteristics of the good. 
C) only on how many other people buy the good. 
D) only on the price of the good. 
A) both on the characteristics of the product and on how many other people are buying the good. 
B) only on the characteristics of the good. 
C) only on how many other people buy the good. 
D) only on the price of the good.

Question 14

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

Accepted Answer

A) income and hold everything else constant. 
B) tastes and preferences and hold everything else constant. 
C) the price of the product and hold everything else constant. 
D) the price of a close substitute and hold everything else constant. 
A) income and hold everything else constant. 
B) tastes and preferences and hold everything else constant. 
C) the price of the product and hold everything else constant. 
D) the price of a close substitute and hold everything else constant.

Question 15

Which of the following describes the substitution effect of a price change?

Accepted Answer

A) The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
A) The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Question 16

All of the following products are likely to have significant network externalities except

Accepted Answer

A) cat food. 
B) cell phones. 
C) popular board games. 
D) Twitter. 
A) cat food. 
B) cell phones. 
C) popular board games. 
D) Twitter.

Question 17

Wilbur Rickhiser, a financial advisor, recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss.Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report.Many of my clients in this situation will hold the stock, hoping the price will later rise above $50.In most cases like this the price does not rise and may even fall.You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice?

Accepted Answer

A) People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B) People sometimes make mistakes when they buy stocks because of the endowment effect. 
C) People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D) People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost. 
A) People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B) People sometimes make mistakes when they buy stocks because of the endowment effect. 
C) People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D) People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost.

Question 18

Lilly Davis has $5 per week to spend on any combination of ice cream and candy.The price of an ice cream cone is $2 and the price of a candy bar is $1.The table below shows Lilly's utility values.Use the table to answer the questions that follow the table.
   
a.Complete the table by filling in the blank spaces.
b.Suppose Lilly purchases 2 ice cream cones and 1 candy bar.Is she consuming the optimal consumption bundle? If so, explain why.If not, what combination should she buy and why?

Accepted Answer

a.
 @#IMG-DLM& b.If Lilly purchases 2 ice cream co

Question 19

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

Accepted Answer

A) True 
 B)False

Question 20

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

Accepted Answer

The two effects are the substitution and

The substitution effect of an increase in the price of Raisin Bran refers to

Identify the one statement that does not demonstrate how social effects influence consumer choice.

Figure 10-10 -Refer to Figure 10-10.The change in the budget constraint from BC₁ to BC₂ implies

One reason that consumers and businesses might not act rationally is

All consumption bundles along a given indifference curve are equally desirable.

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

Marginal utility can be

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

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video.Which of the following is true?

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

Which of the following describes the substitution effect of a price change?

All of the following products are likely to have significant network externalities except

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

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

The substitution effect of an increase in the price of Raisin Bran refers to

Identify the one statement that does not demonstrate how social effects influence consumer choice.

Figure 10-10 -Refer to Figure 10-10.The change in the budget constraint from BC₁ to BC₂ implies

One reason that consumers and businesses might not act rationally is

All consumption bundles along a given indifference curve are equally desirable.

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

Marginal utility can be

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

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video.Which of the following is true?

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

Which of the following describes the substitution effect of a price change?

All of the following products are likely to have significant network externalities except

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.

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