Question 1

When is a good path dependent?

Accepted Answer

A) When consumers get utility from consuming goods that others are consuming, such as restaurants. 
B) When the first technology that was adopted has an advantage over a better technology that came later. 
C) When people who move location follow the path of people who moved before them. 
D) When it can only be used in one way. 
A) When consumers get utility from consuming goods that others are consuming, such as restaurants. 
B) When the first technology that was adopted has an advantage over a better technology that came later. 
C) When people who move location follow the path of people who moved before them. 
D) When it can only be used in one way.

Question 2

Explain the concept of network externalities.
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Accepted Answer

A network externality is a sit

Question 3

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the second chocolate bar is

Accepted Answer

A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer. 
A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer.

Question 4

Total utility is constant along a given indifference curve.

Accepted Answer

A) True 
 B)False

Question 5

A new area of economics studies situations in which people appear to be making choices that do not seem to be economically rational.What is this area called?

Accepted Answer

A) Behavioural economics. 
B) Irrational economics. 
C) Social economics. 
D) New wave economics. 
A) Behavioural economics. 
B) Irrational economics. 
C) Social economics. 
D) New wave economics.

Question 6

What is a Giffen good?
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Accepted Answer

A Giffen good is something con

Question 7

In the utility maximising model, consumer preferences are assumed to be transitive.What does this mean?

Accepted Answer

A) That consumers prefer more of a good to less 
B) That consumers have the freedom to change their preferences from time to time 
C) That consumers have preferences that are relatively consistent in the time period under consideration 
D) That consumers go through cycles in their consumption behaviour 
A) That consumers prefer more of a good to less 
B) That consumers have the freedom to change their preferences from time to time 
C) That consumers have preferences that are relatively consistent in the time period under consideration 
D) That consumers go through cycles in their consumption behaviour

Question 8

An economist observes two consumers in a supermarket.One of the consumers buys a case of Coca-Cola and the other buys a case of Pepsi-Cola.Both colas sell for the same price and the ages and incomes of the consumers are also the same.Based on this information, how would the economist explain the consumers' choices?

Accepted Answer

A) One of the consumers made the wrong choice, but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently, the consumers had different tastes. 
A) One of the consumers made the wrong choice, but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently, the consumers had different tastes.

Question 9

Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?

Accepted Answer

A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity. 
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery. 
C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself. 
D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology. 
A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity. 
B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3000 even though he would not have paid $3000 for a ticket if he had not won the lottery. 
C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself. 
D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.

Question 10

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices ________ the supply of airline tickets while at the same time the demand for airline tickets ________, so airline ticket prices still increased.

Accepted Answer

A) decreased; increased 
B) decreased; decreased 
C) increased; increased 
D) increased; decreased 
A) decreased; increased 
B) decreased; decreased 
C) increased; increased 
D) increased; decreased

Question 11

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

Accepted Answer

A) a decrease in the demand for macaroni and cheese. 
B) an increase in the quantity demanded of macaroni and cheese. 
C) a decrease in the quantity demanded of macaroni and cheese. 
D) an increase in the demand for macaroni and cheese. 
A) a decrease in the demand for macaroni and cheese. 
B) an increase in the quantity demanded of macaroni and cheese. 
C) a decrease in the quantity demanded of macaroni and cheese. 
D) an increase in the demand for macaroni and cheese.

Question 12

What is the income effect of an increase in the price of peaches?

Accepted Answer

A) The change in the quantity demanded of peaches that results from the price increase making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B) The change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C) The change in the quantity demanded of other fruit that results from the impact of the price change on purchasing power, holding all other factors constant. 
D) The change in the quantity demanded of peaches that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. 
A) The change in the quantity demanded of peaches that results from the price increase making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B) The change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C) The change in the quantity demanded of other fruit that results from the impact of the price change on purchasing power, holding all other factors constant. 
D) The change in the quantity demanded of peaches that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Question 13

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 maximiser and she consumes 10 loaves of bread and 12 metric 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 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?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a. See the figure below
b. See the figur

Question 14

What is the substitution effect of an increase in the price of Cornflakes?

Accepted Answer

A) The decrease in the demand for Cornflakes when its price rises. 
B) The result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Cornflakes shifts to the left. 
C) The fact that the higher price of Cornflakes lowers consumers' purchasing power, holding money income constant. 
D) The fact that the higher price of Cornflakes relative to its substitutes, such as Cheerios, causes consumers to buy less Cornflakes. 
A) The decrease in the demand for Cornflakes when its price rises. 
B) The result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Cornflakes shifts to the left. 
C) The fact that the higher price of Cornflakes lowers consumers' purchasing power, holding money income constant. 
D) The fact that the higher price of Cornflakes relative to its substitutes, such as Cheerios, causes consumers to buy less Cornflakes.

Question 15

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

Accepted Answer

A) shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B) shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C) shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D) shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline. 
A) shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B) shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C) shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D) shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline.

Question 16

A network externality occurs when

Accepted Answer

A) there is production cost savings from being networked with suppliers. 
B) there is production cost savings from being networked with buyers. 
C) the usefulness of a good is affected by how many others use the good. 
D) the usefulness of a good is affected by celebrities who use the good. 
A) there is production cost savings from being networked with suppliers. 
B) there is production cost savings from being networked with buyers. 
C) the usefulness of a good is affected by how many others use the good. 
D) the usefulness of a good is affected by celebrities who use the good.

Question 17

An advantage of Microsoft Windows is its compatibility with the widest range of hardware and software.The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users.This scenario is best described by

Accepted Answer

A) endowment effects 
B) endorsement effects 
C) economies of scale 
D) network externalities 
A) endowment effects 
B) endorsement effects 
C) economies of scale 
D) network externalities

Question 18

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

Accepted Answer

A) True 
 B)False

Question 19

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

1.Consumers may believe that the celebri

Question 20

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

Accepted Answer

A) is maximising total utility. 
B) should buy more apples and fewer oranges. 
C) should buy more oranges and fewer apples. 
D) should buy fewer oranges and fewer apples. 
A) is maximising total utility. 
B) should buy more apples and fewer oranges. 
C) should buy more oranges and fewer apples. 
D) should buy fewer oranges and fewer apples.

When is a good path dependent?

Explain the concept of network externalities. __________________________________________________________________________________________________________________________________________________________________________________________

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the second chocolate bar is

Total utility is constant along a given indifference curve.

A new area of economics studies situations in which people appear to be making choices that do not seem to be economically rational.What is this area called?

What is a Giffen good? __________________________________________________________________________________________________________________________________________________________________________________________

In the utility maximising model, consumer preferences are assumed to be transitive.What does this mean?

Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices the supply of airline tickets while at the same time the demand for airline tickets , so airline ticket prices still increased.

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

What is the income effect of an increase in the price of peaches?

What is the substitution effect of an increase in the price of Cornflakes?

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

A network externality occurs when

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity. __________________________________________________________________________________________________________________________________________________________________________________________

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

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

When is a good path dependent?

Explain the concept of network externalities. __________________________________________________________________________________________________________________________________________________________________________________________

If a consumer receives 20 units of utility from consuming two chocolate bars, and 25 units of utility from consuming three chocolate bars, the marginal utility of the second chocolate bar is

Total utility is constant along a given indifference curve.

A new area of economics studies situations in which people appear to be making choices that do not seem to be economically rational.What is this area called?

What is a Giffen good? __________________________________________________________________________________________________________________________________________________________________________________________

In the utility maximising model, consumer preferences are assumed to be transitive.What does this mean?

Some economists have argued that path dependency and switching costs can lead to market failure.Which of the following is an example of this argument?

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

What is the income effect of an increase in the price of peaches?

What is the substitution effect of an increase in the price of Cornflakes?

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

A network externality occurs when

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity. __________________________________________________________________________________________________________________________________________________________________________________________

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

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