Exam 10: Consumer Choice and Behavioral Economics

Behavioral 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?

Costs that have already been incurred,and which cannot be recovered,are known as

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 maximizes her utility she will buy

The substitution effect of a change in the price of cauliflower is the portion of the change in the quantity of cauliflower demanded that can be attributed to the change in the price of a substitute vegetable such as asparagus.

Table 10-1 -Refer to Table 10-1.The table above shows Lee's marginal utility per dollar from consuming ice cream cones and cans of Lime Fizz Soda.The price of an ice cream cone is $2 and the price of Lime Fizz Soda is $1.Use this information to select the correct statement.

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Usher's latest CD for $15 which gives you 75 units of utility,or (b)Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month.The price of fish is $8 per pound and chicken is $4 per pound. a.What is the amount of income allocated to fish and chicken consumption? b.What is the price ratio (the price of fish relative to the price of chicken)? c.Explain the meaning of the price ratio you computed. d.If the Wongs maximize utility,what is the ratio of the marginal utility of fish to the marginal utility of chicken? e.If the price of chicken rises,will the Wong family consume more chicken,less chicken or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

The highest-valued alternative that must be given up to engage in an activity is the definition of

The quantity demanded of tickets to the Super Bowl is always greater than the than the quantity supplied.Which of the following in the best explanation why the National Football League does not raise the price of tickets to the level where the quantity demanded equals the quantity supplied?

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

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

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?

Many people leave their servers tips in restaurants,even when they are not likely to visit the restaurant again.This is evidence that

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets,and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are evidence of

Optimal decisions are made

Some economists have argued that path dependence and switching costs can lead to market failure.Which of the following is an example of this argument?

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

During its run on Broadway,the play The Producers regularly sold out all available tickets at the St.James Theater.The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so.The best explanation for this decision is

Which of the following describes the substitution effect of a price change?

Which of the following statements is false?