Question 1

The endowment effect is

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 2

Each price-quantity combination on a consumer's demand curve shows the utility-maximising quantity at the given price.

Accepted Answer

A) True 
 B)False

Question 3

An increase in income results in an outward shift of an indifference curve.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Table 6.4  
-Refer to Table 6.4.For steak and cheese 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 and grilled chicken sandwiches.Which of the following statements is true?

Accepted Answer

A) If Mabel maximises her utility, she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. 
B) If Mabel was maximising her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. 
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches. 
D) To maximise her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches. 
A) If Mabel maximises her utility, she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. 
B) If Mabel was maximising her utility when spending $14 and then received an additional $4, she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. 
C) Mabel will first buy two steak and cheese sandwiches; then with her remaining $6 she will buy three grilled chicken sandwiches. 
D) To maximise her utility, Mabel will need a total of $36, the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches.

Question 6

The demand curve for a Giffen good is

Accepted Answer

A) non-linear but downward sloping. 
B) vertical. 
C) upward sloping. 
D) nonexistent. 
A) non-linear but downward sloping. 
B) vertical. 
C) upward sloping. 
D) nonexistent.

Question 7

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today).This phenomenon is called

Accepted Answer

A) network externalities 
B) path dependency 
C) sunk cost 
D) comparative advantage 
A) network externalities 
B) path dependency 
C) sunk cost 
D) comparative advantage

Question 8

Table 6.2   Table 6.2 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 6.2.Suppose Keira's income increases from $18 to $23 but prices have not changed.Her utility maximising bundle is now

Accepted Answer

A) 6 cups of soup and 5 sandwiches 
B) 4 cups of soup and 5 sandwiches 
C) 5 cups of soup and 4 sandwiches 
D) 5 cups of soup and 5 sandwiches 
A) 6 cups of soup and 5 sandwiches 
B) 4 cups of soup and 5 sandwiches 
C) 5 cups of soup and 4 sandwiches 
D) 5 cups of soup and 5 sandwiches

Question 9

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Accepted Answer

A) Consumers may get locked into using products with inferior technology. 
B) Market failure 
C) Diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency. 
A) Consumers may get locked into using products with inferior technology. 
B) Market failure 
C) Diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is explained by the law of diminishing marginal utility?

Accepted Answer

A) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola. 
B) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third pretzel. 
C) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her friend Margie's third pretzel. 
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of Coca-Cola. 
A) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola. 
B) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third pretzel. 
C) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her friend Margie's third pretzel. 
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of Coca-Cola.

Question 12

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

Accepted Answer

A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B) By the endowment effect 
C) By the law of diminishing marginal utility 
D) The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect. 
A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B) By the endowment effect 
C) By the law of diminishing marginal utility 
D) The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect.

Question 13

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

Accepted Answer

A) allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. 
B) buy low-priced goods rather than high-priced goods. 
C) maximise her marginal utility from the goods and services she wishes to buy using her limited income. 
D) consume as many necessities as possible and then, if there is money left over, buy luxuries. 
A) allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. 
B) buy low-priced goods rather than high-priced goods. 
C) maximise her marginal utility from the goods and services she wishes to buy using her limited income. 
D) consume as many necessities as possible and then, if there is money left over, buy luxuries.

Question 14

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Accepted Answer

A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal. 
A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Question 15

The demand curve for an inferior good can never be downward sloping.

Accepted Answer

A) True 
 B)False

Question 16

The endowment effect is

Accepted Answer

A) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B) the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C) the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D) the sum total of assets that a person has acquired over the years 
A) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B) the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C) the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D) the sum total of assets that a person has acquired over the years

Question 17

Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time.In less than a week she discovered that the shoes were uncomfortable.Grace went back to wearing her old pair and stashed away the new pair.When asked by her boss, Mme.Ramotswe, why does she not simply give away the new pair, she said: 'But I paid so much for them.' Grace's behaviour

Accepted Answer

A) is rational: she should not discard a valuable item. 
B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C) supports the endowment effect which states that ownership of an item makes it more valuable. 
D) is rational because the more you pay for an item the more valuable it is. 
A) is rational: she should not discard a valuable item. 
B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C) supports the endowment effect which states that ownership of an item makes it more valuable. 
D) is rational because the more you pay for an item the more valuable it is.

Question 18

In explaining consumer behaviour, economists explain how consumer tastes and preferences are formed.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The increase in consumption of a good when its price falls is caused by two effects.What are these two effects? Explain the difference between these effects.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The two effects are the substitution and

The endowment effect is

Each price-quantity combination on a consumer's demand curve shows the utility-maximising quantity at the given price.

An increase in income results in an outward shift of an 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.

The demand curve for a Giffen good is

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today).This phenomenon is called

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

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

Which of the following is explained by the law of diminishing marginal utility?

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

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

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

The demand curve for an inferior good can never be downward sloping.

The endowment effect is

In explaining consumer behaviour, economists explain how consumer tastes and preferences are formed.

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

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

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Exam 6: Consumer Choice and Behavioural Economics

The endowment effect is

Each price-quantity combination on a consumer's demand curve shows the utility-maximising quantity at the given price.

An increase in income results in an outward shift of an 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.

The demand curve for a Giffen good is

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today).This phenomenon is called

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

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

Which of the following is explained by the law of diminishing marginal utility?

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

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

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

The demand curve for an inferior good can never be downward sloping.

The endowment effect is

In explaining consumer behaviour, economists explain how consumer tastes and preferences are formed.

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

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: The Interaction of Demand and Supply

Elasticity: The Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition: The Competitive Model in a More Realistic

Oligopoly: Markets With Few Competitors

The Markets for Labour and Other Factors of Production

Comparative Advantage and the Gains From International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters