Exam 10: Consumer Choice and Behavioral Economics

Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

In making decisions about what to consume, a person's goal is to

Figure 10-4 -Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between g and h?

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

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 false?

Economists assume that the goal of consumers is to

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Economists have noted that businesses of a certain type tend to congregate geographically, attracting workers with skills in those fields.This, in turn, lures more firms seeking employees with those skills.Some examples include commercial banking, software development, and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Explain the endowment effect.

For which of the following products is social influence likely to have the greatest impact?

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.

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Economists assume people's tastes are identical.

Figure 10-2 Figure 10-2 represents the demand for ice cream cones. -Refer to Figure 10-2.When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones.This change in quantity demanded is due to

Figure 10-7 Manuri has $300 to spend on Pilates classes and Yoga classes.The price of a group Pilates class is $20 and the price of a group Yoga class is $10.Manuri's optimal bundle is given by "A" in Figure 10-7. -Refer to Figure 10-7.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe

Farah has $100 to spend each month on bread and chicken.Suppose the price of bread is $4 a loaf and the price of chicken is $5 per pound. a.Draw her budget constraint and label it BC₀.Put bread on the horizontal axis and chicken on the vertical axis.Be sure to identify the intercept values. b.Suppose Farah is a utility maximizer and she consumes 10 loaves of bread and 12 pounds of chicken.On the same graph you drew in part (a), draw an indifference curve to identify her optimal bundle.Label this bundle "E." c.Is her budget exhausted? Verify your answer. d.Now suppose Farah's income falls to so that she can now devote $80 to the two goods.Prices however remain unchanged.In the same diagram, graph her new budget constraint and label it BC₁.Be sure to identify any new intercept values. e.Following the change in income, can Farah consume the same bundle "E"? Explain your answer. f.What must happen to her total utility following the decrease in her income?

Figure 10-6 The above panels show various combinations of indifference curves and budget constraints for two products: Popcorn and Candy. -Refer to Figure 10-6.A change in the price of popcorn only is shown in