Question 1

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 2

Behavioral economics helps explain why customers ________ at J.C. Penney.

Accepted Answer

A)  favored the policy of everyday low prices and not sales and coupons 
B)  favored sales and coupons and not the policy of everyday low prices 
C)  were equally happy with sales and coupons and the policy of everyday low prices 
D)  responded negatively to both sales and coupons and the policy of everyday low prices 
A)  favored the policy of everyday low prices and not sales and coupons 
B)  favored sales and coupons and not the policy of everyday low prices 
C)  were equally happy with sales and coupons and the policy of everyday low prices 
D)  responded negatively to both sales and coupons and the policy of everyday low prices

Question 3

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

In the ultimatum game, allocators usually offer recipients at least a 40 percent share of the money, and recipients almost always reject offers of less than a 10 percent share. Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers?

Accepted Answer

A)  Fear of arousing outrage and abhorrence could influence economic decisions. 
B)  People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C)  Some people are careful not to engage in economic behavior that might offend and alienate others. 
D)  Allocators can count on recipients to ignore all considerations except financial benefit. 
A)  Fear of arousing outrage and abhorrence could influence economic decisions. 
B)  People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C)  Some people are careful not to engage in economic behavior that might offend and alienate others. 
D)  Allocators can count on recipients to ignore all considerations except financial benefit.

Question 7

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Accepted Answer

1. Consumers may believe that the celebr

Question 8

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 9

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

Accepted Answer

A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change 
A)  network externalities 
B)  market failure 
C)  diminishing marginal utility 
D)  the income effect of a price change

Question 10

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 11

Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of cappuccino is $4 each and apple turnovers are $1 each.
a. What is the amount of income allocated to cappuccino and apple turnover consumption?
b. What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

a. Income = $56
b. Price of cappuccino /

Question 12

Figure 10-4  
-Refer to Figure 10-4. What is the marginal rate of substitution between h and j?

Accepted Answer

A)    cookie. 
B)    cookie. 
C)  2 cookies. 
D)  4 cookies. 
A)    cookie. 
B)    cookie. 
C)  2 cookies. 
D)  4 cookies.

Question 13

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 ________ the supply of airline tickets while at the same time the demand for airline tickets ________, so airline ticket prices still increased.

Accepted Answer

A)  decreased; increased 
B)  decreased; decreased 
C)  increased; increased 
D)  increased; decreased 
A)  decreased; increased 
B)  decreased; decreased 
C)  increased; increased 
D)  increased; decreased

Question 14

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

Accepted Answer

A)  25 utility units. 
B)  20 utility units. 
C)  5 utility units. 
D)  unknown, as more information is needed to determine the answer. 
A)  25 utility units. 
B)  20 utility units. 
C)  5 utility units. 
D)  unknown, as more information is needed to determine the answer.

Question 15

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

A) True 
 B)False

Question 16

Figure 10-3  
-Refer to Figure 10-3. The Bobsey twins, Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences?

Accepted Answer

A)  They have identical movie preferences. 
B)  Laurel enjoys romantic comedies more than Hardy. 
C)  Laurel enjoys science fiction movies more than Hardy. 
D)  The diagrams do not provide any information about relative preferences. 
A)  They have identical movie preferences. 
B)  Laurel enjoys romantic comedies more than Hardy. 
C)  Laurel enjoys science fiction movies more than Hardy. 
D)  The diagrams do not provide any information about relative preferences.

Question 17

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

Accepted Answer

A)  the change in the quantity demanded of peaches that results from the price increase making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C)  the change in the quantity demanded of other fruit that results from the impact of the price change on purchasing power, holding all other factors constant. 
D)  the change in the quantity demanded of peaches that results from the effect of the change in price on consumer purchasing power, holding all other factors constant. 
A)  the change in the quantity demanded of peaches that results from the price increase making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power. 
B)  the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant. 
C)  the change in the quantity demanded of other fruit that results from the impact of the price change on purchasing power, holding all other factors constant. 
D)  the change in the quantity demanded of peaches that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Question 18

Total utility

Accepted Answer

A)  cannot decrease as a person consumes more and more of a good. 
B)  has a constant rate of increase as a person consumes more and more of a good. 
C)  is equal to the sum of the marginal utilities of all units consumed. 
D)  is negative when marginal utility is declining. 
A)  cannot decrease as a person consumes more and more of a good. 
B)  has a constant rate of increase as a person consumes more and more of a good. 
C)  is equal to the sum of the marginal utilities of all units consumed. 
D)  is negative when marginal utility is declining.

Question 19

Grant has $200 to spend each month on restaurant meals and jazz performances at his neighborhood jazz club. The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10. Grant is maximizing his utility by consuming 6 restaurant meals and attending 8 jazz performances. Suppose Grant still has $200 to spend, but the price of restaurant meal rises to $25, while the price of jazz performance ticket drops to $8. Is Grant better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.

Accepted Answer

Initially, when the price of a typical r

Question 20

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Accepted Answer

A) True 
 B)False

Exam 10: Consumer Choice and Behavioral Economics

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

Behavioral economics helps explain why customers ________ at J.C. Penney.

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

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?

Firms pay famous individuals to endorse their products because

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

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

Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases?

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

Figure 10-4 -Refer to Figure 10-4. What is the marginal rate of substitution between h and j?

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Figure 10-3 -Refer to Figure 10-3. The Bobsey twins, Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies. Based on the diagrams above what can you conclude about their movie preferences?

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

Total utility

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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