Question 1

If you exhibit the endowment effect as a decision maker, then you are

Accepted Answer

A) deciding on the basis of sunk costs. 
B) buying something you cannot really afford because you expect to save in the future. 
C) ignoring non-monetary opportunity costs. 
D) consuming based on celebrity endorsements. 
A) deciding on the basis of sunk costs. 
B) buying something you cannot really afford because you expect to save in the future. 
C) ignoring non-monetary opportunity costs. 
D) consuming based on celebrity endorsements.

Question 2

Figure 6.3  
-Refer to Figure 6.3.The Bobsey twins, 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.

Question 3

Behavioural economics is

Accepted Answer

A) the study of how people make wealth-maximising decisions 
B) the study of how people behave in the face of scarcity 
C) the study of situations in which people act in ways that are not economically rational 
D) the study of how people make decisions at the margin 
A) the study of how people make wealth-maximising decisions 
B) the study of how people behave in the face of scarcity 
C) the study of situations in which people act in ways that are not economically rational 
D) the study of how people make decisions at the margin

Question 4

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: 'Imagine that you have decided to see a play and paid the admission price of $10 per ticket.As you enter the theatre you discover that you have lost the ticket.The seat was not marked and the ticket cannot be recovered.Would you pay $10 for another ticket?'
Scenario B: 'Imagine that you have decided to see a play where admission is $10 per ticket.As you enter the theatre you discover that you have lost a $10 bill.Would you still pay $10 for a ticket for the play?'
As long as additional tickets are available, there is no meaningful difference between losing $10 in cash before buying a ticket, and losing the $10 ticket after buying it.In both cases, you are out $10.Yet, far more subjects (88 per cent)in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A, only 46 per cent of the subjects say they would be willing to spend another $10 to see the play.
Which of the following is the best explanation for the results of the experiment?

Accepted Answer

A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B. 
A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B.

Question 5

How is total utility maximised in the consumption of two goods?

Accepted Answer

A) By equating the marginal utility for each good consumed. 
B) By equating the marginal utility per dollar for each good consumed. 
C) By equating the total utility of each good divided by its price. 
D) By maximising expenditure on each good. 
A) By equating the marginal utility for each good consumed. 
B) By equating the marginal utility per dollar for each good consumed. 
C) By equating the total utility of each good divided by its price. 
D) By maximising expenditure on each good.

Question 6

Figure 6.2   Figure 6.2 represents the demand for ice cream cones.
-Refer to Figure 6.2.Which of the following statements is true?

Accepted Answer

A) Points a and b are the utility-maximising quantities of ice cream cones at two different prices of ice cream. 
B) Points a and b may not necessarily be the utility-maximising quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximising choice if the price is $3, but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximising model. 
A) Points a and b are the utility-maximising quantities of ice cream cones at two different prices of ice cream. 
B) Points a and b may not necessarily be the utility-maximising quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximising choice if the price is $3, but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximising model.

Question 7

What is the additional utility that George receives from consuming one more slice of pizza?

Accepted Answer

A) average utility. 
B) marginal utility. 
C) total utility. 
D) diminishing utility. 
A) average utility. 
B) marginal utility. 
C) total utility. 
D) diminishing utility.

Question 8

What is marginal utility?

Accepted Answer

A) The change in total utility divided by the price of the last unit of a good or service consumed. 
B) The change in total utility a person receives from consuming an additional unit of a good or service. 
C) The utility from consuming a given quantity of a good or service. 
D) The decrease in total utility from consuming more and more units of a good or service. 
A) The change in total utility divided by the price of the last unit of a good or service consumed. 
B) The change in total utility a person receives from consuming an additional unit of a good or service. 
C) The utility from consuming a given quantity of a good or service. 
D) The decrease in total utility from consuming more and more units of a good or service.

Question 9

Figure 6.7  
-Refer to Figure 6.7.If the consumer has $240 to spend on DVDs and CDs, what is the price of a CD if the budget constraint is BC2?

Accepted Answer

A) $8 
B) $10 
C) $20 
D) $40 
A) $8 
B) $10 
C) $20 
D) $40

Question 10

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 maximises 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 11

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume.Peter explained that 'To maximise his utility, this consumer must equate the marginal utility per dollar for pizza and Coca-Cola.' Was Peter's analysis correct?

Accepted Answer

A) Peter described one of the conditions necessary for utility maximisation.The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B) Peter's statement is correct. 
C) Peter's statement is correct but we must also assume that the consumer is rational. 
D) Peter describes one of the conditions necessary for utility maximisation.The second condition is that total spending on both goods must equal the amount available to be spent. 
A) Peter described one of the conditions necessary for utility maximisation.The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B) Peter's statement is correct. 
C) Peter's statement is correct but we must also assume that the consumer is rational. 
D) Peter describes one of the conditions necessary for utility maximisation.The second condition is that total spending on both goods must equal the amount available to be spent.

Question 12

Table 6.7   Table 6.7 shows Antonio's utility from beer and pizza.
-Refer to Table 6.7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximises his utility?

Accepted Answer

A) 2 glasses of beer, 1 slice of pizza 
B) 2 glasses of beer, 3 slices of pizza 
C) 3 glasses of beer, 2 slices of pizza 
D) 4 glasses of beer, 5 slices of pizza 
A) 2 glasses of beer, 1 slice of pizza 
B) 2 glasses of beer, 3 slices of pizza 
C) 3 glasses of beer, 2 slices of pizza 
D) 4 glasses of beer, 5 slices of pizza

Question 13

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) at times she could be indifferent among the three items. 
B) she must prefer pizza to hot dogs. 
C) she could prefer hamburgers to pizza on some occasions but not hot dogs to pizza. 
D) she could prefer hot dogs to pizza on some occasions but not hamburgers to hot dogs. 
A) at times she could be indifferent among the three items. 
B) she must prefer pizza to hot dogs. 
C) she could prefer hamburgers to pizza on some occasions but not hot dogs to pizza. 
D) she could prefer hot dogs to pizza on some occasions but not hamburgers to hot dogs.

Question 15

The only Giffen goods that have been identified so far in the real world are luxury goods.

Accepted Answer

A) True 
 B)False

Question 16

What are costs that have already been incurred, and which cannot be recovered?

Accepted Answer

A) Short-run fixed costs. 
B) Implicit costs. 
C) Unavoidable costs. 
D) Sunk costs. 
A) Short-run fixed costs. 
B) Implicit costs. 
C) Unavoidable costs. 
D) Sunk costs.

Question 17

Describe the demand curve for a Giffen good.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The demand curve for a Giffen

Question 18

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again.This is evidence that

Accepted Answer

A) people would rather pay for good service at an inexpensive restaurant than pay higher prices and receive poor service at an expensive restaurant. 
B) people enjoy eating at restaurants more than eating at home. 
C) people treat others fairly even if doing so makes them worse off financially. 
D) there has been an improvement in the service people receive in restaurants over time, partly because the restaurant industry has become more competitive. 
A) people would rather pay for good service at an inexpensive restaurant than pay higher prices and receive poor service at an expensive restaurant. 
B) people enjoy eating at restaurants more than eating at home. 
C) people treat others fairly even if doing so makes them worse off financially. 
D) there has been an improvement in the service people receive in restaurants over time, partly because the restaurant industry has become more competitive.

Question 19

Which of the following correctly describes the result of a price increase for an inferior good?

Accepted Answer

A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease. 
A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease.

Question 20

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximising bundle when we change

Accepted Answer

A) income and hold everything else constant. 
B) tastes and preferences and hold everything else constant. 
C) the price of the product and hold everything else constant. 
D) the price of a close substitute and hold everything else constant. 
A) income and hold everything else constant. 
B) tastes and preferences and hold everything else constant. 
C) the price of the product and hold everything else constant. 
D) the price of a close substitute and hold everything else constant.

If you exhibit the endowment effect as a decision maker, then you are

Figure 6.3 -Refer to Figure 6.3.The Bobsey twins, 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?

Behavioural economics is

How is total utility maximised in the consumption of two goods?

Figure 6.2 Figure 6.2 represents the demand for ice cream cones. -Refer to Figure 6.2.Which of the following statements is true?

What is the additional utility that George receives from consuming one more slice of pizza?

What is marginal utility?

Figure 6.7 -Refer to Figure 6.7.If the consumer has $240 to spend on DVDs and CDs, what is the price of a CD if the budget constraint is BC₂?

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 maximises her utility she will buy

Table 6.7 Table 6.7 shows Antonio's utility from beer and pizza. -Refer to Table 6.7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximises his utility?

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

What are costs that have already been incurred, and which cannot be recovered?

Describe the demand curve for a Giffen good. __________________________________________________________________________________________________________________________________________________________________________________________

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again.This is evidence that

Which of the following correctly describes the result of a price increase for an inferior good?

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximising bundle when we change

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

Exam 6: Consumer Choice and Behavioural Economics

If you exhibit the endowment effect as a decision maker, then you are

Figure 6.3 -Refer to Figure 6.3.The Bobsey twins, 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?

Behavioural economics is

How is total utility maximised in the consumption of two goods?

Figure 6.2 Figure 6.2 represents the demand for ice cream cones. -Refer to Figure 6.2.Which of the following statements is true?

What is the additional utility that George receives from consuming one more slice of pizza?

What is marginal utility?

Figure 6.7 -Refer to Figure 6.7.If the consumer has $240 to spend on DVDs and CDs, what is the price of a CD if the budget constraint is BC2?

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 maximises her utility she will buy

Table 6.7 Table 6.7 shows Antonio's utility from beer and pizza. -Refer to Table 6.7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximises his utility?

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

What are costs that have already been incurred, and which cannot be recovered?

Describe the demand curve for a Giffen good. __________________________________________________________________________________________________________________________________________________________________________________________

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again.This is evidence that

Which of the following correctly describes the result of a price increase for an inferior good?

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximising bundle when we change

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

Figure 6.7 -Refer to Figure 6.7.If the consumer has $240 to spend on DVDs and CDs, what is the price of a CD if the budget constraint is BC₂?