Question 1

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

Accepted Answer

A)  Economists formerly believed social factors were very important, but now most economists believe social factors are not important. 
B)  Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. 
C)  Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. 
D)  Economists traditionally believed they were unimportant, but many economists now believe social factors are important. 
A)  Economists formerly believed social factors were very important, but now most economists believe social factors are not important. 
B)  Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. 
C)  Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. 
D)  Economists traditionally believed they were unimportant, but many economists now believe social factors are important.

Question 2

Suppose Joe is maximising total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

Accepted Answer

A)  2000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility. 
A)  2000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility.

Question 3

A sunk cost is

Accepted Answer

A)  another term that means opportunity cost. 
B)  a term used to describe the cost of capital that the owners of a firm sink into their business. 
C)  the highest valued alternative that must be given up to engage in an activity. 
D)  a cost that has already been paid and cannot be recovered. 
A)  another term that means opportunity cost. 
B)  a term used to describe the cost of capital that the owners of a firm sink into their business. 
C)  the highest valued alternative that must be given up to engage in an activity. 
D)  a cost that has already been paid and cannot be recovered.

Question 4

Why do convex indifference curves have a negative slope?

Accepted Answer

A)  because consumers take market prices as given 
B)  because consumers face a budget constraint 
C)  because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D)  because scarcity implies that it is not possible to consume more of one good without giving up some of the other 
A)  because consumers take market prices as given 
B)  because consumers face a budget constraint 
C)  because to keep utility constant, a consumer must get more of one good if she is to give up some of the other 
D)  because scarcity implies that it is not possible to consume more of one good without giving up some of the other

Question 5

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 6

-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

-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 8

-Refer to Table 6-2. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximising bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

Accepted Answer

A)  Soup is an inferior good and sandwiches are a normal good. 
B)  Soup is a normal good and sandwiches are an inferior good. 
C)  Both soup and sandwiches are normal goods. 
D)  Both soup and sandwiches are inferior goods. 
A)  Soup is an inferior good and sandwiches are a normal good. 
B)  Soup is a normal good and sandwiches are an inferior good. 
C)  Both soup and sandwiches are normal goods. 
D)  Both soup and sandwiches are inferior goods.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Question 11

Which of the following is a common mistake consumers commit when they make decisions?

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 12

Consumers maximise total utility within their budget constraint by

Accepted Answer

A)  buying the cheapest goods they can find. 
B)  buying whatever they like the best. 
C)  buying the goods with the largest marginal utility per dollar spent. 
D)  spending the same dollar amount for each good. 
A)  buying the cheapest goods they can find. 
B)  buying whatever they like the best. 
C)  buying the goods with the largest marginal utility per dollar spent. 
D)  spending the same dollar amount for each good.

Question 13

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's 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 14

Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme. Ramotswe, why does she not simply give away the new pair, she said: 'But I paid so much for them.' Grace's behaviour

Accepted Answer

A)  is rational: she should not discard a valuable item. 
B)  ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C)  supports the endowment effect which states that ownership of an item makes it more valuable. 
D)  is rational because the more you pay for an item the more valuable it is. 
A)  is rational: she should not discard a valuable item. 
B)  ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. 
C)  supports the endowment effect which states that ownership of an item makes it more valuable. 
D)  is rational because the more you pay for an item the more valuable it is.

Question 15

If the price of muffins, a normal good that you enjoy, rises,

Accepted Answer

A)  the income and substitution effects offset each other, but the price effect leads you to buy fewer muffins. 
B)  both the income and substitution effects lead you to buy fewer muffins. 
C)  the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
D)  the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
A)  the income and substitution effects offset each other, but the price effect leads you to buy fewer muffins. 
B)  both the income and substitution effects lead you to buy fewer muffins. 
C)  the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased. 
D)  the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

Question 16

When diminishing marginal utility sets in, total utility must be negative.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

Consider the following hypothetical scenarios: Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away.
Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store?

Accepted Answer

A)  Scenario B because a $15 saving amounts to a substantial discount (about 33 per cent) 
B)  in either scenario if I think a $15 savings is worth the 20-minute trip 
C)  in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
D)  B and C are correct answers. 
A)  Scenario B because a $15 saving amounts to a substantial discount (about 33 per cent) 
B)  in either scenario if I think a $15 savings is worth the 20-minute trip 
C)  in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
D)  B and C are correct answers.

Question 20

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.

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

A sunk cost is

Why do convex indifference curves have a negative slope?

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

-Refer to Figure 6-2. Which of the following statements is true?

-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?

-Refer to Table 6-2. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximising bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

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

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

Which of the following is a common mistake consumers commit when they make decisions?

Consumers maximise total utility within their budget constraint by

If the price of muffins, a normal good that you enjoy, rises,

When diminishing marginal utility sets in, total utility must be negative.

A network externality occurs when

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

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

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : 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 Compitive Markets

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

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: Concumer Choice and Behavioural Economics

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

A sunk cost is

Why do convex indifference curves have a negative slope?

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

-Refer to Figure 6-2. Which of the following statements is true?

-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?

-Refer to Table 6-2. Holding prices constant, when Keira's income changed from $18 to $23, her utility maximising bundle changed. Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

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

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

Which of the following is a common mistake consumers commit when they make decisions?

Consumers maximise total utility within their budget constraint by

If the price of muffins, a normal good that you enjoy, rises,

When diminishing marginal utility sets in, total utility must be negative.

A network externality occurs when

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

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

Economics Foundations and Models

Choices and Trade - Offs in the Market

Where Prices Come Frome : 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 Compitive Markets

Monopoly Markets

Monopolistic Competition : The Competitive Model in More Realistic Setting

Oligopoly : Firms in Less Competitve Markets

The Market for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities , Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters