Exam 10: Consumer Choice and Behavioral Economics

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

Which of the following is held constant along an indifference curve?

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then if preferences are transitive

Gowri has $6 per day to purchase lunch.She spends all of her lunch money on pizza and iced tea.The price of pizza is $2.00 per slice and iced tea costs $1 per bottle. a.Draw Gowri's budget constraint and label it BC₀.Put pizza on the horizontal axis and iced tea on the vertical axis.Be sure to identify the intercept values. b.If the price of iced tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram.Be sure to indicate any new intercept values.

Table 10-4 -Refer to Table 10-4.For steak and cheese sandwiches and grilled chicken sandwiches, the table contains the values of the marginal utility (MU)and marginal utility per dollar (MU/P)for Mabel Jarvis.Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches.Which of the following statements is true?

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result.How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines

Total utility is constant along a given indifference curve.

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

If the price of lattes, a normal good you enjoy, falls, then

One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.

Which of the following does not explain why consumers buy products that many other consumers are already buying?

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 is the ratio of the marginal utility of fish to the marginal utility of chicken? 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.

Table 10-3 -Refer to Table 10-3.The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda.The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1.Use this information to select the correct statement.

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

A Giffen good could be either a normal good or an inferior good.

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

The substitution effect of a price increase causes a decrease in the quantity of an inferior good demanded.

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of