Question 1

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

Accepted Answer

A) the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B) the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C) the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. 
D) the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. 
A) the change in the quantity of peaches demanded that results from the price increase, making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B) the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C) the change in the quantity of other fruit demanded that results from the impact of the price change on purchasing power, holding all other factors constant. 
D) the change in the quantity of peaches demanded that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Question 2

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

Accepted Answer

A) MU/P has increased and Ewan should buy more of this good. 
B) MU/P has increased and Ewan should buy less of this good. 
C) MU/P has decreased and Ewan should buy more of this good. 
D) MU/P has decreased and Ewan should buy less of this good. 
A) MU/P has increased and Ewan should buy more of this good. 
B) MU/P has increased and Ewan should buy less of this good. 
C) MU/P has decreased and Ewan should buy more of this good. 
D) MU/P has decreased and Ewan should buy less of this good.

Question 3

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of a cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility, what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers, or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

a.Income = $56
b.Price of cappuccino / p

Question 4

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximizes her utility she will buy

Accepted Answer

A) both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk. 
B) three times as many veggie burgers as pints of soy milk. 
C) three times as many pints of soy milk as veggie burgers. 
D) both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers. 
A) both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk. 
B) three times as many veggie burgers as pints of soy milk. 
C) three times as many pints of soy milk as veggie burgers. 
D) both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers.

Question 5

The word "util" has been used by economists in the past as an objective measure of utility.Today economists believe that

Accepted Answer

A) utility cannot be measured objectively. 
B) utility can be measured objectively because people can use prices of different goods to measure utility. 
C) all of the important conclusions of the economic model of consumer behavior depend on utility being measured objectively. 
D) the util truly is an objective, rather than a subjective, measure of utility. 
A) utility cannot be measured objectively. 
B) utility can be measured objectively because people can use prices of different goods to measure utility. 
C) all of the important conclusions of the economic model of consumer behavior depend on utility being measured objectively. 
D) the util truly is an objective, rather than a subjective, measure of utility.

Question 6

If preferences are transitive, indifference curves

Accepted Answer

A) intersect at the equilibrium consumption bundle. 
B) intersect at the optimum consumption bundle. 
C) intersect where the marginal rate of substitution for each indifference curve is equal. 
D) do not intersect. 
A) intersect at the equilibrium consumption bundle. 
B) intersect at the optimum consumption bundle. 
C) intersect where the marginal rate of substitution for each indifference curve is equal. 
D) do not intersect.

Question 7

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 8

The income effect due to a price decrease will result in an increase in the quantity demanded for

Accepted Answer

A) a Giffen good. 
B) an inferior good. 
C) a public good. 
D) a normal good. 
A) a Giffen good. 
B) an inferior good. 
C) a public good. 
D) a normal good.

Question 9

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

A) True 
 B)False

Question 10

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, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed, and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases. 
A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility, the marginal utility of the last cup of soup consumed, and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 11

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

Accepted Answer

A) the substitution effect. 
B) the income effect. 
C) the deadweight loss effect. 
D) the elasticity effect. 
A) the substitution effect. 
B) the income effect. 
C) the deadweight loss effect. 
D) the elasticity effect.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A) Giffen goods; luxury goods 
B) the income effect; the substitution effect 
C) the ultimatum game; the dictator game 
D) network externalities; the endowment effect 
A) Giffen goods; luxury goods 
B) the income effect; the substitution effect 
C) the ultimatum game; the dictator game 
D) network externalities; the endowment effect

Question 14

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

Accepted Answer

A) maximized. 
B) decreasing. 
C) negative. 
D) increasing. 
A) maximized. 
B) decreasing. 
C) negative. 
D) increasing.

Question 15

The observation that people tend to value something more highly when they own it than when they don't is called the

Accepted Answer

A) wealth effect. 
B) endowment effect. 
C) path-dependent effect. 
D) endorsement effect. 
A) wealth effect. 
B) endowment effect. 
C) path-dependent effect. 
D) endorsement effect.

Question 16

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Accepted Answer

A) of their work with experimental economics. 
B) they discovered the first example of a Giffen good. 
C) of their work on the substitution and income effects of price changes. 
D) they proved that external economies would lead to market failure. 
A) of their work with experimental economics. 
B) they discovered the first example of a Giffen good. 
C) of their work on the substitution and income effects of price changes. 
D) they proved that external economies would lead to market failure.

Question 17

What is the endowment effect?

Accepted Answer

A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it 
D) the tendency of firms to use celebrities endowed with good looks to promote their products 
A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it 
D) the tendency of firms to use celebrities endowed with good looks to promote their products

Question 18

The highest-valued alternative that must be given up to engage in an activity is the definition of

Accepted Answer

A) utility. 
B) implicit cost. 
C) opportunity cost. 
D) economic sacrifice. 
A) utility. 
B) implicit cost. 
C) opportunity cost. 
D) economic sacrifice.

Question 19

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

Accepted Answer

A) a normal good; very small 
B) an inferior good; very small 
C) a normal good; very large 
D) an inferior good; very large 
A) a normal good; very small 
B) an inferior good; very small 
C) a normal good; very large 
D) an inferior good; very large

Question 20

Figure 10-3
  
-Refer to Figure 10-3.Best friends Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

Accepted Answer

A) They have identical movie preferences. 
B) Laurel enjoys romantic comedies more than Hardy. 
C) Laurel enjoys science fiction movies more than Hardy. 
D) The diagrams do not provide any information about relative preferences. 
A) They have identical movie preferences. 
B) Laurel enjoys romantic comedies more than Hardy. 
C) Laurel enjoys science fiction movies more than Hardy. 
D) The diagrams do not provide any information about relative preferences.

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

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximizes her utility she will buy

The word "util" has been used by economists in the past as an objective measure of utility.Today economists believe that

If preferences are transitive, indifference curves

Behavioral economics is the study of situations in which people make rational choices.

The income effect due to a price decrease will result in an increase in the quantity demanded for

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

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

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.

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

The observation that people tend to value something more highly when they own it than when they don't is called the

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

What is the endowment effect?

The highest-valued alternative that must be given up to engage in an activity is the definition of

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be and make up a portion of a consumer's budget.

Figure 10-3 -Refer to Figure 10-3.Best friends Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

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

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

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximizes her utility she will buy

The word "util" has been used by economists in the past as an objective measure of utility.Today economists believe that

If preferences are transitive, indifference curves

Behavioral economics is the study of situations in which people make rational choices.

The income effect due to a price decrease will result in an increase in the quantity demanded for

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

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

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

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

The observation that people tend to value something more highly when they own it than when they don't is called the

Maurice Allais, Reinhard Selten, and Vernon Smith all were awarded the Nobel Prize in Economics in part because

What is the endowment effect?

The highest-valued alternative that must be given up to engage in an activity is the definition of

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

Figure 10-3 -Refer to Figure 10-3.Best friends Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

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

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be and make up a portion of a consumer's budget.