Exam 10: Consumer Choice and Behavioral Economics

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.

Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important.

If the marginal utility Ida Mae receives from eating chicken wings is negative, then

What is an indifference curve?

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card, even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Suppose the consumer's income increases while the prices of the goods remain constant. Then the

The demand curve for a Giffen good is

The demand curve for a luxury good is upward-sloping.

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

Which of the following is explained by the law of diminishing marginal utility?

A budget constraint

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a

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 behavior

Which of the following demonstrates the endowment effect?

Table 10-3 -Refer to Table 10-3. 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.

Why might network externalities result in products that contain inferior technologies?

The slope of an indifference curve

Table 10-2 Table 10-2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods. -Refer to Table 10-2. If Keira maximizes her utility, how many units of each good should she buy?

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