Question 1

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Accepted Answer

A)  increasing the unit prices of their products. 
B)  reducing the unit sizes of their products. 
C)  producing more units of their products. 
D)  passively accepting lower profits. 
A)  increasing the unit prices of their products. 
B)  reducing the unit sizes of their products. 
C)  producing more units of their products. 
D)  passively accepting lower profits.

Question 2

Which of the following statements about the so-called "hedonic treadmill" is not true?

Accepted Answer

A)  It is a consequence of the fact that our brains are wired to notice changes rather than states. 
B)  An increase in consumption level will give a permanent increase in happiness. 
C)  It is the reason why people across a wide spectrum of incomes are found to be equally happy. 
D)  A one-shot increase in income will, in the long run, not affect people's sense of satisfaction. 
A)  It is a consequence of the fact that our brains are wired to notice changes rather than states. 
B)  An increase in consumption level will give a permanent increase in happiness. 
C)  It is the reason why people across a wide spectrum of incomes are found to be equally happy. 
D)  A one-shot increase in income will, in the long run, not affect people's sense of satisfaction.

Question 3

Anchoring leads people to consider irrelevant information when making decisions.

Accepted Answer

A) True 
 B)False

Question 4

When people base their estimates of the likelihood of an event on how often they've heard of such an event, they illustrate the

Accepted Answer

A)  confirmation bias. 
B)  framing effect. 
C)  hindsight bias. 
D)  availability heuristic. 
A)  confirmation bias. 
B)  framing effect. 
C)  hindsight bias. 
D)  availability heuristic.

Question 5

People's tendency to prefer something that will yield immediate benefits over something whose benefits come later is called what by behavioral economists?

Accepted Answer

A)  myopia 
B)  mental accounting 
C)  anchoring 
D)  framing 
A)  myopia 
B)  mental accounting 
C)  anchoring 
D)  framing

Question 6

According to behavioral economists, people tend to put too much weight on the future when they make decisions.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

Accepted Answer

A)  People are irrational, are prone to systematic errors, have stable preferences, and care about fairness. 
B)  People are rational, adjust for errors, have stable preferences, and easily resist temptation. 
C)  People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness. 
D)  People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior. 
A)  People are irrational, are prone to systematic errors, have stable preferences, and care about fairness. 
B)  People are rational, adjust for errors, have stable preferences, and easily resist temptation. 
C)  People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness. 
D)  People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

Question 8

When people make decisions that go against their own interests, neoclassical economics explains this to be instances where people are

Accepted Answer

A)  intentionally not maximizing their net benefit. 
B)  ignorant of what their best interests are. 
C)  simply incapable of making rational decisions. 
D)  behaving quite rationally. 
A)  intentionally not maximizing their net benefit. 
B)  ignorant of what their best interests are. 
C)  simply incapable of making rational decisions. 
D)  behaving quite rationally.

Question 9

The availability heuristic refers to people purchasing what is most easily accessible.

Accepted Answer

A) True 
 B)False

Question 10

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

Accepted Answer

A)  A majority of decisions are not made according to the neoclassical assumption of rational behavior. 
B)  Most decisions are made following a careful calculation of costs and benefits. 
C)  Even though most decisions are irrational, the neoclassical model still accurately predicts outcomes. 
D)  System 1 is best at making optimal decisions. 
A)  A majority of decisions are not made according to the neoclassical assumption of rational behavior. 
B)  Most decisions are made following a careful calculation of costs and benefits. 
C)  Even though most decisions are irrational, the neoclassical model still accurately predicts outcomes. 
D)  System 1 is best at making optimal decisions.

Question 11

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam. When he cracked open his book and notes the night before the exam, he realized he should've started studying earlier. According to behavioral economics, Dan's error was caused primarily by

Accepted Answer

A)  a planning fallacy. 
B)  an overconfidence effect. 
C)  framing effects. 
D)  hindsight bias. 
A)  a planning fallacy. 
B)  an overconfidence effect. 
C)  framing effects. 
D)  hindsight bias.

Question 12

Selfishness is

Accepted Answer

A)  exhibited more strongly in the ultimatum game than in the dictator game. 
B)  exhibited more strongly in the dictator game than in the ultimatum game. 
C)  exhibited equally strongly in both the ultimatum and dictator games. 
D)  rarely exhibited in either the ultimatum or dictator games. 
A)  exhibited more strongly in the ultimatum game than in the dictator game. 
B)  exhibited more strongly in the dictator game than in the ultimatum game. 
C)  exhibited equally strongly in both the ultimatum and dictator games. 
D)  rarely exhibited in either the ultimatum or dictator games.

Question 13

The human tendency to believe only those data that agree with one's preconceptions and ignore other data that contradict the preconceptions is called

Accepted Answer

A)  confirmation bias. 
B)  self-serving bias. 
C)  overconfidence effect. 
D)  availability heuristic. 
A)  confirmation bias. 
B)  self-serving bias. 
C)  overconfidence effect. 
D)  availability heuristic.

Question 14

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Accepted Answer

A)  price changes. 
B)  financial incentives. 
C)  firms' profits. 
D)  uncertainty and fairness. 
A)  price changes. 
B)  financial incentives. 
C)  firms' profits. 
D)  uncertainty and fairness.

Exam 8: Behavioral Economics

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Which of the following statements about the so-called "hedonic treadmill" is not true?

Anchoring leads people to consider irrelevant information when making decisions.

When people base their estimates of the likelihood of an event on how often they've heard of such an event, they illustrate the

People's tendency to prefer something that will yield immediate benefits over something whose benefits come later is called what by behavioral economists?

According to behavioral economists, people tend to put too much weight on the future when they make decisions.

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

When people make decisions that go against their own interests, neoclassical economics explains this to be instances where people are

The availability heuristic refers to people purchasing what is most easily accessible.

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

Selfishness is

The human tendency to believe only those data that agree with one's preconceptions and ignore other data that contradict the preconceptions is called

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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