Question 1

What is the endowment effect?

Accepted Answer

A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years 
A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years

Question 2

Suppose the marginal utilities for the first three cans of coke are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

Accepted Answer

A)  20. 
B)  80. 
C)  90. 
D)  180. 
A)  20. 
B)  80. 
C)  90. 
D)  180.

Question 3

Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

Accepted Answer

A)  Vinny's indifference curve for tacos and chicken wings must have a negative slope. 
B)  the prices Vinny pays for tacos and chicken wings are always the same. 
C)  Vinny's marginal utility from each good must be constant along his convex indifference curves for tacos and chicken wings. 
D)  Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings. 
A)  Vinny's indifference curve for tacos and chicken wings must have a negative slope. 
B)  the prices Vinny pays for tacos and chicken wings are always the same. 
C)  Vinny's marginal utility from each good must be constant along his convex indifference curves for tacos and chicken wings. 
D)  Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings.

Question 4

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?

Accepted Answer

and undervalue the utility the

Question 5

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that 'To maximise his utility, this consumer must equate the marginal utility per dollar for pizza and Coca-Cola.' Was Peter's analysis correct?

Accepted Answer

A)  Peter described one of the conditions necessary for utility maximisation. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximisation. The second condition is that total spending on both goods must equal the amount available to be spent. 
A)  Peter described one of the conditions necessary for utility maximisation. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximisation. The second condition is that total spending on both goods must equal the amount available to be spent.

Question 6

-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

Accepted Answer

A)  the price and output effects. 
B)  the income and substitution effects. 
C)  the law of diminishing marginal utility. 
D)  the fact that marginal willingness to pay falls. 
A)  the price and output effects. 
B)  the income and substitution effects. 
C)  the law of diminishing marginal utility. 
D)  the fact that marginal willingness to pay falls.

Question 7

The substitution effect of an increase in the price of peaches is

Accepted Answer

A)  the change in the quantity demanded that results from a change in the price of peaches making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for nectarines (a substitute good) that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C)  the change in the quantity demanded of peaches that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D)  the change in the demand for peaches that results when the price of peaches increases. 
A)  the change in the quantity demanded that results from a change in the price of peaches making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for nectarines (a substitute good) that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power. 
C)  the change in the quantity demanded of peaches that results from the effect of the change in the price of peaches on the consumer's purchasing power. 
D)  the change in the demand for peaches that results when the price of peaches increases.

Question 8

What is a Giffen good?

Accepted Answer

A Giffen good is something con

Question 9

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 10

-Refer to Figure 6-5. Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged. What is her new optimal bundle?

Accepted Answer

A)  still remains at bundle A 
B)  bundle B 
C)  bundle C 
D)  bundle D 
A)  still remains at bundle A 
B)  bundle B 
C)  bundle C 
D)  bundle D

Question 11

We can derive the market demand curve for gold earrings

Accepted Answer

A)  only if the tastes of all gold earring consumers are similar. 
B)  by adding horizontally the individual demand curves of each gold earring consumer. 
C)  by adding vertically the quantity demanded of each gold earring consumed at each price. 
D)  by adding the prices each gold earring consumer is willing to pay for each quantity. 
A)  only if the tastes of all gold earring consumers are similar. 
B)  by adding horizontally the individual demand curves of each gold earring consumer. 
C)  by adding vertically the quantity demanded of each gold earring consumed at each price. 
D)  by adding the prices each gold earring consumer is willing to pay for each quantity.

Question 12

-Refer to Table 6-5, which lists the values of Harry Taber's marginal utility and marginal utility per dollar for burgers and sushi rolls. Assume that the price of the burgers is $4 and the price of sushi rolls is $2. When Harry's income is $14 he buys two burgers and three sushi rolls. The last column lists the values of the marginal utility per dollar for sushi rolls when the price of sushi rolls decreases to $1. Complete this statement: As a result of the change in price, the marginal utility of each sushi roll Harry consumes increases, and

Accepted Answer

A)  the substitution effect of the price change will cause Harry to buy more sushi rolls and fewer burgers. 
B)  the substitution effect of the price change will cause Harry to buy more sushi rolls if they are a normal good, and fewer sushi rolls if they are an inferior good. 
C)  the substitution effect will cause Harry to buy another burger because his purchasing power has increased. 
D)  the substitution effect will cause Harry to buy fewer sushi rolls. 
A)  the substitution effect of the price change will cause Harry to buy more sushi rolls and fewer burgers. 
B)  the substitution effect of the price change will cause Harry to buy more sushi rolls if they are a normal good, and fewer sushi rolls if they are an inferior good. 
C)  the substitution effect will cause Harry to buy another burger because his purchasing power has increased. 
D)  the substitution effect will cause Harry to buy fewer sushi rolls.

Question 13

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Accepted Answer

A) True 
 B)False

Question 14

What does the marginal rate of substitution measure?

Accepted Answer

A)  It measures the rate at which a consumer must give up one good to purchase another good. 
B)  It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C)  It measures the change in utility from consuming one additional unit of a good. 
D)  It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant. 
A)  It measures the rate at which a consumer must give up one good to purchase another good. 
B)  It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C)  It measures the change in utility from consuming one additional unit of a good. 
D)  It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

Question 15

Jamal, Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant. It is possible that some of the people in line won't be served at all before the restaurant closes. Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a. In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product. Consequently, a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity.
B. Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers.
C. The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits.

Accepted Answer

A)  a only 
B)  a and b only 
C)  a and c only 
D)  a, b, and c 
A)  a only 
B)  a and b only 
C)  a and c only 
D)  a, b, and c

Question 16

An increase in income results in an outward shift of an indifference curve.

Accepted Answer

A) True 
 B)False

Question 17

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

Accepted Answer

A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions and quantity demanded increases. 
D)  work in opposite directions and quantity demanded decreases. 
A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions and quantity demanded increases. 
D)  work in opposite directions and quantity demanded decreases.

Question 18

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

Accepted Answer

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

Question 19

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

Accepted Answer

A)  the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded. 
B)  the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded. 
C)  both the income and substitution effects reinforce each other to increase the quantity demanded. 
D)  the income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn. 
A)  the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded. 
B)  the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded. 
C)  both the income and substitution effects reinforce each other to increase the quantity demanded. 
D)  the income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn.

Question 20

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay. If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

Accepted Answer

A)  You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B)  by the endowment effect 
C)  by the law of diminishing marginal utility 
D)  The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect. 
A)  You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B)  by the endowment effect 
C)  by the law of diminishing marginal utility 
D)  The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect.

What is the endowment effect?

Suppose the marginal utilities for the first three cans of coke are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

-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

The substitution effect of an increase in the price of peaches is

What is a Giffen good?

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?

-Refer to Figure 6-5. Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged. What is her new optimal bundle?

We can derive the market demand curve for gold earrings

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

What does the marginal rate of substitution measure?

An increase in income results in an outward shift of an indifference curve.

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

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

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay. If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

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

Exam 6: Concumer Choice and Behavioural Economics

What is the endowment effect?

Suppose the marginal utilities for the first three cans of coke are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

Vinny consumes tacos and chicken wings. To keep his utility constant, he must consume more tacos if he consumes fewer chicken wings. This means that

-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

The substitution effect of an increase in the price of peaches is

What is a Giffen good?

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?

-Refer to Figure 6-5. Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged. What is her new optimal bundle?

We can derive the market demand curve for gold earrings

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

What does the marginal rate of substitution measure?

An increase in income results in an outward shift of an indifference curve.

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

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

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay. If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

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