Exam 10: Consumer Choice and Behavioral Economics

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

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?

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational.This area is called

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

What is a Giffen good?

A significant downside to network externalities is that

Table 10-2 Table 10-2 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 10-2.If Keira maximizes her utility, how many units of each good should she buy?

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

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

What is the endowment effect?

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

An item has utility for a consumer if it

Which of the following demonstrates the endowment effect?

A network externality occurs when

If, when you consume another piece of candy, your marginal utility is zero, then

Figure 10-8 -Refer to Figure 10-8.Given the budget constraint in the diagram, which of the following statements is false?

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

Explain the concept of network externalities.

The slope of an indifference curve

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?