Exam 6: Consumer Choice and Behavioural Economics

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

Behavioural economics helps explain why customers ________ at Big W.

Wilbur Rickhiser, a financial advisor, recently told one of his clients: 'The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss.Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report.Many of my clients in this situation will hold the stock, hoping the price will later rise above $50.In most cases like this the price does not rise and may even fall.You must know when to cut your losses.' Which of the following is the best explanation for Rickhiser's advice?

Figure 6.2 Figure 6.2 represents the demand for ice cream cones. -Refer to Figure 6.2.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

Behavioural economists examine choices that consumers make that are not economically rational.Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs.Why do consumers not act rationally when the result is that they make themselves worse off? __________________________________________________________________________________________________________________________________________________________________________________________

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 DVD if the budget constraint is BC₁?

Which of the following is true about total utility?

Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects

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.

The marginal rate of substitution is determined by the slope of an indifference curve.

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Why do consumers have to make trade-offs in deciding what to consume?

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00.Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant.Toni's actions are explained by which of the following?

Why might network externalities result in products that contain inferior technologies? __________________________________________________________________________________________________________________________________________________________________________________________

Figure 6.5 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 6-5. -Refer to Figure 6.5.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.The substitution effect of this price change is represented by the movement from

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

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

Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his website, despite the nearly $200 000 he had invested in his education.In making his decision, the $200 000 he spent on his education

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.