Question 1

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

Accepted Answer

A) the income and substitution effects offset each other but the price effect leads you to buy fewer muffins. 
B) both the income and substitution effects lead you to buy fewer muffins. 
C) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
D) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
A) the income and substitution effects offset each other but the price effect leads you to buy fewer muffins. 
B) both the income and substitution effects lead you to buy fewer muffins. 
C) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
D) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

Question 2

What is an indifference curve? Why can indifference curves never cross?

Accepted Answer

An indifference curve shows the combinat

Question 3

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

Accepted Answer

A) car buyers are irrational. 
B) the total utility of less expensive cars is greater than that of luxury cars. 
C) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. 
D) luxury cars cost a lot more than non-luxury cars. 
A) car buyers are irrational. 
B) the total utility of less expensive cars is greater than that of luxury cars. 
C) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. 
D) luxury cars cost a lot more than non-luxury cars.

Question 4

If a consumer always buys goods rationally, then

Accepted Answer

A) the total utilities of the different goods consumed will be equal. 
B) the average utilities of the different goods consumed will be equal. 
C) the marginal utility per dollar spent on all goods will be equal. 
D) the marginal utility of the different goods consumed will be equal. 
A) the total utilities of the different goods consumed will be equal. 
B) the average utilities of the different goods consumed will be equal. 
C) the marginal utility per dollar spent on all goods will be equal. 
D) the marginal utility of the different goods consumed will be equal.

Question 5

A change in the price of a good has two effects on the quantity consumed.What are these effects?

Accepted Answer

A) the income effect and the substitution effect 
B) the utility effect and the budget effect 
C) the total utility effect and marginal utility effect 
D) the consumption effect and expenditure effect 
A) the income effect and the substitution effect 
B) the utility effect and the budget effect 
C) the total utility effect and marginal utility effect 
D) the consumption effect and expenditure effect

Question 6

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?

Accepted Answer

A) Yes, the marginal utility from the last unit of each good is equal. 
B) No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C) No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D) No, without information on her income and the prices of the two goods, we cannot answer the question. 
A) Yes, the marginal utility from the last unit of each good is equal. 
B) No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C) No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D) No, without information on her income and the prices of the two goods, we cannot answer the question.

Question 7

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.Holding prices constant, when Keira's income changed from $18 to $23, her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

Accepted Answer

A) Soup is an inferior good and sandwiches are a normal good. 
B) Soup is a normal good and sandwiches are an inferior good. 
C) Both soup and sandwiches are normal goods. 
D) Both soup and sandwiches are inferior goods. 
A) Soup is an inferior good and sandwiches are a normal good. 
B) Soup is a normal good and sandwiches are an inferior good. 
C) Both soup and sandwiches are normal goods. 
D) Both soup and sandwiches are inferior goods.

Question 8

The income effect of a price increase for a Giffen good outweighs the substitution effect.

Accepted Answer

A) True 
 B)False

Question 9

Article Summary
The use of celebrities to endorse products remains a popular way for many companies to attract customers and keep their products relevant to their customers. The article discusses five factors that must be examined by a company when choosing a celebrity to endorse its product:
1. The cost of a superstar versus the value of a rising star
2. Finding a good fit between the celebrity and the image of the brand
3. Choosing someone who will promote the brand
4. Identifying valid metrics to measure success
5. The future appeal of the celebrity
Carefully chosen celebrity endorsements have proven to influence customers and enhance a brand's reputation, but as the list indicates, not all celebrities are the right fit for all products.
Source: David Schwab, " Keeping Up With The Evolving World Of Celebrity Endorsement," Forbes, June 27, 2015.
-Refer to the Article Summary above.One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Accepted Answer

A) more utility 
B) diminishing utility 
C) greater network externalities 
D) increased path dependency 
A) more utility 
B) diminishing utility 
C) greater network externalities 
D) increased path dependency

Question 10

What is marginal utility and what is the law of diminishing marginal utility?

Accepted Answer

Marginal utility is the change in total

Question 11

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 12

Which of the following is a common mistake consumers commit when they make decisions?

Accepted Answer

A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behavior. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much. 
A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behavior. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much.

Question 13

Table 10-7
   
Table 10-7 shows Antonio's utility from beer and pizza.
-Refer to Table 10-7.What is Antonio's marginal utility from consuming the fifth beer?

Accepted Answer

A) 4 utils 
B) 13.6 utils 
C) 69 utils 
D) 134 utils 
A) 4 utils 
B) 13.6 utils 
C) 69 utils 
D) 134 utils

Question 14

Table 10-1
   
Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3.Table 10-1 shows his total utility from different quantities of the two items.
-Refer to Table 10-1.What is Keegan's optimal consumption bundle?

Accepted Answer

A) 3 pita wraps and 3 bubble teas 
B) 3 pita wraps and 4 bubble teas 
C) 4 pita wraps and 2 bubble teas 
D) 5 pita wraps and 0 bubble teas 
A) 3 pita wraps and 3 bubble teas 
B) 3 pita wraps and 4 bubble teas 
C) 4 pita wraps and 2 bubble teas 
D) 5 pita wraps and 0 bubble teas

Question 15

An economist observes two consumers in a supermarket.One of the consumers buys a case of Coca-Cola and the other buys a case of Pepsi-Cola.Both colas sell for the same price and the ages and incomes of the consumers are also the same.Based on this information, how would the economist explain the consumers' choices?

Accepted Answer

A) One of the consumers made the wrong choice, but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently, the consumers had different tastes. 
A) One of the consumers made the wrong choice, but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently, the consumers had different tastes.

Question 16

Some economists have argued that path dependence and switching costs can lead to market failure.Which of the following is an example of this argument?

Accepted Answer

A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity. 
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3,000 even though he would not have paid $3,000 for a ticket if he had not won the lottery. 
C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself. 
D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology. 
A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity. 
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3,000 even though he would not have paid $3,000 for a ticket if he had not won the lottery. 
C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself. 
D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Jamal, Lawson, and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant.It is possible that some of the people in line won't be served at all before the restaurant closes.Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines?
A.In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product.Consequently, a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity.
B.Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers.
C.The demand for restaurant meals is relatively elastic and if the firm raises prices it will lower its profits.

Accepted Answer

A) a only 
B) a and b only 
C) a and c only 
D) a, b, and c 
A) a only 
B) a and b only 
C) a and c only 
D) a, b, and c

Question 19

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office 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

The demand curve for a Giffen good slopes upward.

Accepted Answer

A) True 
 B)False

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

What is an indifference curve? Why can indifference curves never cross?

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

If a consumer always buys goods rationally, then

A change in the price of a good has two effects on the quantity consumed.What are these 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?

The income effect of a price increase for a Giffen good outweighs the substitution effect.

What is marginal utility and what is the law of diminishing marginal utility?

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?

Which of the following is a common mistake consumers commit when they make decisions?

Table 10-7 Table 10-7 shows Antonio's utility from beer and pizza. -Refer to Table 10-7.What is Antonio's marginal utility from consuming the fifth beer?

Table 10-1 Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3.Table 10-1 shows his total utility from different quantities of the two items. -Refer to Table 10-1.What is Keegan's optimal consumption bundle?

Some economists have argued that path dependence and switching costs can lead to market failure.Which of the following is an example of this argument?

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

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

The demand curve for a Giffen good slopes upward.

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 More Realistic Setting

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

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

What is an indifference curve? Why can indifference curves never cross?

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

If a consumer always buys goods rationally, then

A change in the price of a good has two effects on the quantity consumed.What are these 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?

The income effect of a price increase for a Giffen good outweighs the substitution effect.

What is marginal utility and what is the law of diminishing marginal utility?

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?

Which of the following is a common mistake consumers commit when they make decisions?

Table 10-7 Table 10-7 shows Antonio's utility from beer and pizza. -Refer to Table 10-7.What is Antonio's marginal utility from consuming the fifth beer?

Table 10-1 Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3.Table 10-1 shows his total utility from different quantities of the two items. -Refer to Table 10-1.What is Keegan's optimal consumption bundle?

Some economists have argued that path dependence and switching costs can lead to market failure.Which of the following is an example of this argument?

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

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

The demand curve for a Giffen good slopes upward.

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 More Realistic Setting

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