Exam 10: Consumer Choice and Behavioral Economics

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

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

If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs then

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

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

________ is an experiment that tests the significance of fairness in consumer decision making.

Figure 10-2 Figure 10-2 represents the demand for ice cream cones. -Refer to Figure 10-2.Which of the following statements is true?

Figure 10-10 -Refer to Figure 10-10.If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC₁?

The additional utility that George receives from consuming one more slice of pizza is called

Carolyn spends her income on popular magazines and music CDs.If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

In 2016, the most profit from the musical Hamilton went to

If the price of muffins, a normal good you enjoy, rises, then

Behavioral economists examine choices that consumers make that are not economically rational.Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs.Why do consumers not act rationally when the result is that they make themselves worse off?

The enjoyment or satisfaction people receive from consuming goods and services is called utility.

The demand curve for a Giffen good slopes upward.

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month.The price of fish is $8 per pound and chicken is $4 per pound. a.What is the amount of income allocated to fish and chicken consumption? b.What is the price ratio (the price of fish relative to the price of chicken)? c.Explain the meaning of the price ratio you computed. d.If the Wongs maximize utility, what must the ratio of the marginal utility of fish to the marginal utility of chicken be equal to? e.If the price of chicken rises, will the Wong family consume more chicken, less chicken, or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

During its run on Broadway, the play The Producers regularly sold out all available tickets at the St.James Theater.The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so.The best explanation for this decision is

Which of the following is a common mistake made by consumers?

The marginal rate of substitution is the slope of an indifference curve.

An increase in income results in an outward shift of an indifference curve.