Question 1

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

Accepted Answer

A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect. 
A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect.

Question 2

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximises her utility she will buy

Accepted Answer

A)  both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk. 
B)  three times as many veggie burgers as pints of soy milk. 
C)  three times as many pints of soy milk as veggie burgers. 
D)  both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers. 
A)  both goods until the marginal utility of veggie burgers is three times the marginal utility of soy milk. 
B)  three times as many veggie burgers as pints of soy milk. 
C)  three times as many pints of soy milk as veggie burgers. 
D)  both goods until the marginal utility of a pint of soy milk is three times the marginal utility of veggie burgers.

Question 3

-Refer to Figure 6-7. Consider the budget constraint BC1. If the price of DVDs is $20 and the price of CDs is $10, what is the consumer's income?

Accepted Answer

A)  $120 
B)  $240 
C)  $360 
D)  $480 
A)  $120 
B)  $240 
C)  $360 
D)  $480

Question 4

-Refer to Table 6-2. If Keira maximises her utility, how many units of each good should she buy?

Accepted Answer

A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches 
A)  1 cup of soup and 5 sandwiches 
B)  3 cups of soup and 4 sandwiches 
C)  6 cups of soup and 2 sandwiches 
D)  4 cups of soup and 3.5 sandwiches

Question 5

Economists have noted that businesses of a certain type tend to congregate geographically, attracting workers with skills in those fields. This, in turn, lures more firms seeking employees with those skills. Some examples include commercial banking, software development, and the automobile industry. What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Accepted Answer

The mechanism at work is a network exter

Question 6

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 7

The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.

Accepted Answer

The two effects are the substitution and

Question 8

Consider a downward-sloping demand curve. When the price of an inferior good decreases, 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 9

-Refer to Figure 6-1. When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

Accepted Answer

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

Question 10

Which of the following is not a common mistake made by consumers?

Accepted Answer

A)  the failure to take into account the implicit costs of an activity 
B)  the failure to ignore sunk costs 
C)  being overly optimistic about their future behaviour 
D)  being overly pessimistic about their future behaviour 
A)  the failure to take into account the implicit costs of an activity 
B)  the failure to ignore sunk costs 
C)  being overly optimistic about their future behaviour 
D)  being overly pessimistic about their future behaviour

Question 11

The economic model of consumer behaviour predicts that

Accepted Answer

A)  consumers will try to earn as much income as they can over their lifetimes. 
B)  consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy. 
C)  consumers will try to accumulate as many goods and services as they can before they die. 
D)  consumers will divide their time between consumption and leisure activities in order to maximise social welfare. 
A)  consumers will try to earn as much income as they can over their lifetimes. 
B)  consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy. 
C)  consumers will try to accumulate as many goods and services as they can before they die. 
D)  consumers will divide their time between consumption and leisure activities in order to maximise social welfare.

Question 12

Wilbur Rickhiser, a financial advisor, recently told one of his clients: 'The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss. Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report. Many of my clients in this situation will hold the stock, hoping the price will later rise above $50. In most cases like this the price does not rise and may even fall. You must know when to cut your losses.' Which of the following is the best explanation for Rickhiser's advice?

Accepted Answer

A)  People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B)  People sometimes make mistakes when they buy stocks because of the endowment effect. 
C)  People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D)  People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost. 
A)  People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. 
B)  People sometimes make mistakes when they buy stocks because of the endowment effect. 
C)  People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. 
D)  People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost.

Question 13

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

Accepted Answer

A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples. 
A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples.

Question 14

The marginal rate of substitution is determined by the slope of an indifference curve.

Accepted Answer

A) True 
 B)False

Question 15

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,

Accepted Answer

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

Question 16

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping. A logical reason for this is that the decline in fuel prices

Accepted Answer

A)  shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B)  shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C)  shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D)  shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline. 
A)  shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B)  shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C)  shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D)  shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline.

Question 17

-Refer to Table 6-7. What is Antonio's marginal utility from consuming the fifth beer?

Accepted Answer

A)  4 utils 
B)  13.6 utils 
C)  69 utils 
D)  134 utils 
A)  4 utils 
B)  13.6 utils 
C)  69 utils 
D)  134 utils

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Identify the one statement that does not demonstrate how social effects influence consumer choice.

Accepted Answer

A)  Students in an Economics class are required to purchase a textbook assigned by the professor. 
B)  There is utility gained from consuming goods or services that others are consuming. 
C)  Some products that people consume are determined by the social popularity of the products. 
D)  Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the Internet for others to see. 
A)  Students in an Economics class are required to purchase a textbook assigned by the professor. 
B)  There is utility gained from consuming goods or services that others are consuming. 
C)  Some products that people consume are determined by the social popularity of the products. 
D)  Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the Internet for others to see.

Question 20

-Refer to Table 6-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is false?

Accepted Answer

A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximises her utility, she will buy three grilled chicken sandwiches. 
C)  If Mabel maximises her utility, she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximise her utility. 
A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximises her utility, she will buy three grilled chicken sandwiches. 
C)  If Mabel maximises her utility, she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximise her utility.

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximises her utility she will buy

-Refer to Figure 6-7. Consider the budget constraint BC₁. If the price of DVDs is $20 and the price of CDs is $10, what is the consumer's income?

-Refer to Table 6-2. If Keira maximises her utility, how many units of each good should she buy?

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

The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.

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

-Refer to Figure 6-1. When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀. This change in quantity demanded is due to

Which of the following is not a common mistake made by consumers?

The economic model of consumer behaviour predicts that

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

The marginal rate of substitution is determined by the slope of an indifference curve.

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping. A logical reason for this is that the decline in fuel prices

-Refer to Table 6-7. What is Antonio's marginal utility from consuming the fifth beer?

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

Identify the one statement that does not demonstrate how social effects influence consumer choice.

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

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

If Lisa spends her income on veggie burgers and pints of soy milk and the price of veggie burgers is three times the price of a pint of soy milk, then when Lisa maximises her utility she will buy

-Refer to Figure 6-7. Consider the budget constraint BC1. If the price of DVDs is $20 and the price of CDs is $10, what is the consumer's income?

-Refer to Table 6-2. If Keira maximises her utility, how many units of each good should she buy?

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

The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.

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

-Refer to Figure 6-1. When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to

Which of the following is not a common mistake made by consumers?

The economic model of consumer behaviour predicts that

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

The marginal rate of substitution is determined by the slope of an indifference curve.

The demand curve for canned peas is downward sloping. If the price of canned peas, an inferior good, rises,

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping. A logical reason for this is that the decline in fuel prices

-Refer to Table 6-7. What is Antonio's marginal utility from consuming the fifth beer?

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

Identify the one statement that does not demonstrate how social effects influence consumer choice.

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

-Refer to Figure 6-7. Consider the budget constraint BC₁. If the price of DVDs is $20 and the price of CDs is $10, what is the consumer's income?

-Refer to Figure 6-1. When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀. This change in quantity demanded is due to