Question 1

Goods with upward-sloping demand curves are referred to as

Accepted Answer

A) marshall goods. 
B) giffen goods. 
C) substitute goods. 
D) luxury goods. 
A) marshall goods. 
B) giffen goods. 
C) substitute goods. 
D) luxury goods.

Question 2

Which of the following products are least likely to have significant network externalities?

Accepted Answer

A) Cat food. 
B) Mobile phones 
C) Popular board games. 
D) Fax machines. 
A) Cat food. 
B) Mobile phones 
C) Popular board games. 
D) Fax machines.

Question 3

After getting an A on your economics exam, you decide to go to your favourite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility, or (b)the enchiladas for $15 which gives you 195 units of utility?
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

You should buy the chimichanga

Question 4

If Callum is consuming his utility maximising bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?

Accepted Answer

A) MU/P has increased, and Callum should buy more of this good. 
B) MU/P has increased, and Callum should buy less of this good. 
C) MU/P has decreased, and Callum should buy more of this good. 
D) MU/P has decreased, and Callum should buy less of this good. 
A) MU/P has increased, and Callum should buy more of this good. 
B) MU/P has increased, and Callum should buy less of this good. 
C) MU/P has decreased, and Callum should buy more of this good. 
D) MU/P has decreased, and Callum should buy less of this good.

Question 5

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

Accepted Answer

A) True 
 B)False

Question 6

A common mistake consumers commit when they make decisions is

Accepted Answer

A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behaviour. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much. 
A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behaviour. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much.

Question 7

The endowment effect suggests that people

Accepted Answer

A) have a strong attachment to their entitlements, regardless of whether they paid to acquire them. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways that distort market prices. 
A) have a strong attachment to their entitlements, regardless of whether they paid to acquire them. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways that distort market prices.

Question 8

Assume that Anne has $300 to spend on DVDs and CDs.Her optimal consumption of DVDs and CDs is illustrated by a tangency between a budget line and an indifference curve.Now assume that the price of CDs rises but the price of DVDs falls.How can you show that Anne is made better off by these price changes?

Accepted Answer

A) Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs. 
A) Show that the price changes shift Anne's budget line outward; the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices; then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs, which give her greater utility than CDs.

Question 9

Which of the following statements about utility and preferences is false?

Accepted Answer

A) If Sidra prefers tea to coffee and coffee to hot chocolate, then she must prefer tea to hot chocolate. 
B) Preferences can be ranked. 
C) If two individuals, Ingrid and Inez, each consume the same bundle of goods, then both Inez and Ingrid must receive the same utility from the bundle. 
D) Utility cannot be compared across consumers. 
A) If Sidra prefers tea to coffee and coffee to hot chocolate, then she must prefer tea to hot chocolate. 
B) Preferences can be ranked. 
C) If two individuals, Ingrid and Inez, each consume the same bundle of goods, then both Inez and Ingrid must receive the same utility from the bundle. 
D) Utility cannot be compared across consumers.

Question 10

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

Accepted Answer

A) remain constant. 
B) increase also. 
C) decrease. 
D) be negative. 
A) remain constant. 
B) increase also. 
C) decrease. 
D) be negative.

Question 11

Giffen goods

Accepted Answer

A) are theoretical and have never been discovered in the real world. 
B) have not existed since prior to the Industrial Revolution. 
C) were proven to exist in the 1890s by Sir Robert Giffen. 
D) were not shown to actually exist until 2006. 
A) are theoretical and have never been discovered in the real world. 
B) have not existed since prior to the Industrial Revolution. 
C) were proven to exist in the 1890s by Sir Robert Giffen. 
D) were not shown to actually exist until 2006.

Question 12

A sunk cost is a cost that has already been paid and cannot be recovered.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is true about a budget constraint?

Accepted Answer

A) Represents the bundles of consumption that make a consumer equally happy. 
B) Refers to the limited amount of income available to consumers to spend on goods and services. 
C) Reflects the desire by consumers to increase their income. 
D) Shows the prices that a consumer chooses to pay for products he consumes. 
A) Represents the bundles of consumption that make a consumer equally happy. 
B) Refers to the limited amount of income available to consumers to spend on goods and services. 
C) Reflects the desire by consumers to increase their income. 
D) Shows the prices that a consumer chooses to pay for products he consumes.

Question 14

Gowri has $6 per day to purchase lunch.She spends all of her lunch money on pizza and iced tea.The price of pizza is $2.00 per slice and iced tea costs $1 per bottle.
a. Draw Gowri's budget constraint and label it BC0.Put pizza on the horizontal axis and iced tea on the vertical axis.Be sure to identify the intercept values.
b. If the price of iced tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram.Be sure to indicate any new intercept values.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

a. @#IMG-DLM& b.BC₁ in the figu

Question 15

Which of the following is true along a downward-sloping linear demand curve?

Accepted Answer

A) The marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B) The marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C) The marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D) The marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remains constant. 
A) The marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B) The marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C) The marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D) The marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remains constant.

Question 16

The income effect of a decrease in the price of legal services, a normal good, results in

Accepted Answer

A) a decrease in the demand for legal services. 
B) a decrease in the quantity demanded of legal services. 
C) an increase in the quantity demanded of legal services. 
D) an increase in the demand for legal services. 
A) a decrease in the demand for legal services. 
B) a decrease in the quantity demanded of legal services. 
C) an increase in the quantity demanded of legal services. 
D) an increase in the demand for legal services.

Question 17

Grant has $200 to spend each month on restaurant meals and jazz performances at his neighbourhood jazz club.The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10.Grant is maximising his utility by consuming 6 restaurant meals and attending 8 jazz performances.Suppose Grant still has $200 to spend, but the price of restaurant meal rises to $25, while the price of jazz performance ticket drops to $8.Is Grant better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

Initially, when the price of a typical r

Question 18

Which of the following describes the substitution effect of a price change?

Accepted Answer

A) The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
A) The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Question 19

What is the satisfaction a person received from consuming goods and services called?

Accepted Answer

A) Contentment. 
B) Psychic income. 
C) Wealth. 
D) Utility. 
A) Contentment. 
B) Psychic income. 
C) Wealth. 
D) Utility.

Question 20

Figure 6.7  
-Refer to Figure 6.7.The change in the budget constraint from BC1 to BC2 implies

Accepted Answer

A) the prices of DVDs and CDs have increased. 
B) income and the prices of DVDs and CDs have increased. 
C) the price of DVDs has increased and the price of CDs has decreased. 
D) the price of DVDs has decreased and the price of CDs has increased. 
A) the prices of DVDs and CDs have increased. 
B) income and the prices of DVDs and CDs have increased. 
C) the price of DVDs has increased and the price of CDs has decreased. 
D) the price of DVDs has decreased and the price of CDs has increased.

Goods with upward-sloping demand curves are referred to as

Which of the following products are least likely to have significant network externalities?

If Callum is consuming his utility maximising bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

A common mistake consumers commit when they make decisions is

The endowment effect suggests that people

Which of the following statements about utility and preferences is false?

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

Giffen goods

A sunk cost is a cost that has already been paid and cannot be recovered.

Which of the following is true about a budget constraint?

Which of the following is true along a downward-sloping linear demand curve?

The income effect of a decrease in the price of legal services, a normal good, results in

Which of the following describes the substitution effect of a price change?

What is the satisfaction a person received from consuming goods and services called?

Figure 6.7 -Refer to Figure 6.7.The change in the budget constraint from BC₁ to BC₂ implies

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

Goods with upward-sloping demand curves are referred to as

Which of the following products are least likely to have significant network externalities?

If Callum is consuming his utility maximising bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?

A consumer maximises her total utility from a bundle of goods when her marginal utility from each good is equal.

A common mistake consumers commit when they make decisions is

The endowment effect suggests that people

Which of the following statements about utility and preferences is false?

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

Giffen goods

A sunk cost is a cost that has already been paid and cannot be recovered.

Which of the following is true about a budget constraint?

Which of the following is true along a downward-sloping linear demand curve?

The income effect of a decrease in the price of legal services, a normal good, results in

Which of the following describes the substitution effect of a price change?

What is the satisfaction a person received from consuming goods and services called?

Figure 6.7 -Refer to Figure 6.7.The change in the budget constraint from BC1 to BC2 implies

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.The change in the budget constraint from BC₁ to BC₂ implies