Question 1

The income effect of a price increase for a Giffen good outweighs the substitution effect.

Accepted Answer

A) True 
 B)False

Question 2

The only Giffen goods that have been identified so far in the real world are luxury goods.

Accepted Answer

A) True 
 B)False

Question 3

The slope of the indifference curve is referred to as

Accepted Answer

A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal trade-off rate. 
A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal trade-off rate.

Question 4

A change in the price of a good has two effects on the quantity consumed. What are these effects?

Accepted Answer

A)  the income effect and the substitution effect 
B)  the utility effect and the budget effect 
C)  the total utility effect and marginal utility effect 
D)  the consumption effect and expenditure effect 
A)  the income effect and the substitution effect 
B)  the utility effect and the budget effect 
C)  the total utility effect and marginal utility effect 
D)  the consumption effect and expenditure effect

Question 5

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

Accepted Answer

A)  external 
B)  implicit 
C)  switching 
D)  marginal 
A)  external 
B)  implicit 
C)  switching 
D)  marginal

Question 6

The absolute value of the slope of the budget constraint is equal to

Accepted Answer

A)  the marginal rate of substitution between the two goods in question. 
B)  the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C)  the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D)  quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis. 
A)  the marginal rate of substitution between the two goods in question. 
B)  the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C)  the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D)  quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis.

Question 7

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

Accepted Answer

A) True 
 B)False

Question 8

-Refer to Table 6-6. What is Jay's optimal consumption bundle?

Accepted Answer

A)  1 burger and 2 Pepsis 
B)  2 burgers and 3 Pepsis 
C)  3 burgers and 1 Pepsi 
D)  3 burgers and 2 Pepsis 
A)  1 burger and 2 Pepsis 
B)  2 burgers and 3 Pepsis 
C)  3 burgers and 1 Pepsi 
D)  3 burgers and 2 Pepsis

Question 9

The slope of an indifference curve

Accepted Answer

A)  is calculated by dividing the price of the good on the vertical axis by price of the good on the horizontal axis. 
B)  measures total utility. 
C)  measures the marginal rate of substitution between the two goods in question. 
D)  is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis. 
A)  is calculated by dividing the price of the good on the vertical axis by price of the good on the horizontal axis. 
B)  measures total utility. 
C)  measures the marginal rate of substitution between the two goods in question. 
D)  is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis.

Question 10

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

Accepted Answer

The good must be an

Question 11

Consider a downward-sloping demand curve. When the price of a normal 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 12

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies. Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found that

Accepted Answer

A)  there is no convincing evidence that the alternative technologies were superior. 
B)  consumers sometimes do become locked into the use of products with inferior technologies. 
C)  in all of these cases, network externalities resulted in market failure. 
D)  consumers use products with inferior technologies when their prices are lower than products with superior technologies. 
A)  there is no convincing evidence that the alternative technologies were superior. 
B)  consumers sometimes do become locked into the use of products with inferior technologies. 
C)  in all of these cases, network externalities resulted in market failure. 
D)  consumers use products with inferior technologies when their prices are lower than products with superior technologies.

Question 13

The substitution effect of an increase in the price of Cornflakes refers to

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 14

Firms pay famous individuals to endorse their products because

Accepted Answer

A)  apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. 
B)  the firms are irrational and are wasting advertising expenditures. 
C)  famous people obviously know what are the best goods and services. 
D)  famous people only consume high quality products. 
A)  apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. 
B)  the firms are irrational and are wasting advertising expenditures. 
C)  famous people obviously know what are the best goods and services. 
D)  famous people only consume high quality products.

Question 15

If, when you consume another piece of chocolate, your marginal utility is zero, then

Accepted Answer

A)  you want more chocolate. 
B)  you have maximised your total utility from consuming chocolate. 
C)  you have not yet reached the point of diminishing marginal utility. 
D)  you should consume less chocolate. 
A)  you want more chocolate. 
B)  you have maximised your total utility from consuming chocolate. 
C)  you have not yet reached the point of diminishing marginal utility. 
D)  you should consume less chocolate.

Question 16

In making decisions about what to consume, a person's goal is to

Accepted Answer

A)  allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. 
B)  buy low-priced goods rather than high-priced goods. 
C)  maximise her marginal utility from the goods and services she wishes to buy using her limited income. 
D)  consume as many necessities as possible and then, if there is money left over, buy luxuries. 
A)  allocate her limited income among all the products she wishes to buy so that she receives the highest total utility. 
B)  buy low-priced goods rather than high-priced goods. 
C)  maximise her marginal utility from the goods and services she wishes to buy using her limited income. 
D)  consume as many necessities as possible and then, if there is money left over, buy luxuries.

Question 17

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximising her utility, she buys

Accepted Answer

A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines. 
A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as many magazines as CDs. 
D)  four times as many CDs as magazines.

Question 18

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Accepted Answer

A)  whether consumers care about fairness when they make decisions. 
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. 
C)  whether consumers understand the difference between implicit costs and explicit costs. 
D)  whether consumers understand the rule of equal marginal utility per dollar spent. 
A)  whether consumers care about fairness when they make decisions. 
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. 
C)  whether consumers understand the difference between implicit costs and explicit costs. 
D)  whether consumers understand the rule of equal marginal utility per dollar spent.

Question 19

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

Accepted Answer

A) True 
 B)False

Question 20

For a demand curve to be upward sloping, the good would have to be an inferior good, and

Accepted Answer

A)  the income effect would have to be larger than the substitution effect. 
B)  the income effect would have to be smaller than the substitution effect. 
C)  the income effect would have to be equal to the substitution effect. 
D)  the income effect and the substitution effect would have to be nonexistent. 
A)  the income effect would have to be larger than the substitution effect. 
B)  the income effect would have to be smaller than the substitution effect. 
C)  the income effect would have to be equal to the substitution effect. 
D)  the income effect and the substitution effect would have to be nonexistent.

The income effect of a price increase for a Giffen good outweighs the substitution effect.

The only Giffen goods that have been identified so far in the real world are luxury goods.

The slope of the indifference curve is referred to as

A change in the price of a good has two effects on the quantity consumed. What are these effects?

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

The absolute value of the slope of the budget constraint is equal to

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

-Refer to Table 6-6. What is Jay's optimal consumption bundle?

The slope of an indifference curve

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

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

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies. Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found that

The substitution effect of an increase in the price of Cornflakes refers to

Firms pay famous individuals to endorse their products because

If, when you consume another piece of chocolate, your marginal utility is zero, then

In making decisions about what to consume, a person's goal is to

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximising her utility, she buys

Economists have used the ultimatum game and the dictator game in experiments designed to determine

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

For a demand curve to be upward sloping, the good would have to be an inferior good, and

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

The income effect of a price increase for a Giffen good outweighs the substitution effect.

The only Giffen goods that have been identified so far in the real world are luxury goods.

The slope of the indifference curve is referred to as

A change in the price of a good has two effects on the quantity consumed. What are these effects?

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

The absolute value of the slope of the budget constraint is equal to

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

-Refer to Table 6-6. What is Jay's optimal consumption bundle?

The slope of an indifference curve

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

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

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies. Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found that

The substitution effect of an increase in the price of Cornflakes refers to

Firms pay famous individuals to endorse their products because

If, when you consume another piece of chocolate, your marginal utility is zero, then

In making decisions about what to consume, a person's goal is to

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximising her utility, she buys

Economists have used the ultimatum game and the dictator game in experiments designed to determine

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

For a demand curve to be upward sloping, the good would have to be an inferior good, and

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