Question 1

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

Accepted Answer

A) True 
 B)False

Question 2

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

A) True 
 B)False

Question 3

After getting an A on your economics exam, you decide to go to your favorite Mexican restaurant to celebrate. You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) the chimichanga for $8 which gives you 120 units of utility, or (b) the enchiladas for $15 which gives you 195 units of utility?

Accepted Answer

You should buy the chimichanga

Question 4

Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine. Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude. He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs. Petty could charge more, but he doesn't see the point. He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices. He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers") concerts that are less than market clearing prices.
Source: Anthony Kuzminski, "Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/

Accepted Answer

Tickets to Tom Petty's concerts consiste

Question 5

Figure 10-2   Figure 10-2 represents the demand for ice cream cones.
-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.

Question 6

Sunk costs

Accepted Answer

A)  are costs associated with repairing something you already own. 
B)  are important for optimal decision making. 
C)  are costs that have already been paid and cannot be recaptured in any significant way. 
D)  are costs that firms sink into marketing. 
A)  are costs associated with repairing something you already own. 
B)  are important for optimal decision making. 
C)  are costs that have already been paid and cannot be recaptured in any significant way. 
D)  are costs that firms sink into marketing.

Question 7

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

Accepted Answer

A)  short-run fixed costs. 
B)  implicit costs. 
C)  unavoidable costs. 
D)  sunk costs. 
A)  short-run fixed costs. 
B)  implicit costs. 
C)  unavoidable costs. 
D)  sunk costs.

Question 8

A network externality occurs when

Accepted Answer

A)  there is production cost savings from being networked with suppliers. 
B)  there is production cost savings from being networked with buyers. 
C)  the usefulness of a good is affected by how many others use the good. 
D)  the usefulness of a good is affected by celebrities who use the good. 
A)  there is production cost savings from being networked with suppliers. 
B)  there is production cost savings from being networked with buyers. 
C)  the usefulness of a good is affected by how many others use the good. 
D)  the usefulness of a good is affected by celebrities who use the good.

Question 9

Figure 10-9  
-Refer to Figure 10-9. If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC1?

Accepted Answer

A)  $10 
B)  $20 
C)  $24 
D)  $40 
A)  $10 
B)  $20 
C)  $24 
D)  $40

Question 10

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following?

Accepted Answer

A)  income effect only or substitution effect only but not both effects 
B)  income and substitution effects 
C)  price effect 
D)  consumption effect 
A)  income effect only or substitution effect only but not both effects 
B)  income and substitution effects 
C)  price effect 
D)  consumption effect

Question 11

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

Accepted Answer

A)  The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C)  The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D)  The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
A)  The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. 
B)  The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. 
C)  The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D)  The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Question 12

A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.

Accepted Answer

A) True 
 B)False

Question 13

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. Holding prices constant, when Keira's income changes from $18 to $23, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A)  Her total utility increases, but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B)  Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C)  Her total utility decreases, but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D)  Her total utility and the marginal utility of the last cup of soup consumed increase, but marginal utility of the last sandwich consumed decreases. 
E)  Her total utility and the marginal utility of the last sandwich consumed increase, but marginal utility of the last cup of soup consumed decreases. 
A)  Her total utility increases, but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B)  Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase. 
C)  Her total utility decreases, but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D)  Her total utility and the marginal utility of the last cup of soup consumed increase, but marginal utility of the last sandwich consumed decreases. 
E)  Her total utility and the marginal utility of the last sandwich consumed increase, but marginal utility of the last cup of soup consumed decreases.

Question 14

A Giffen good could be either a normal good or an inferior good.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-6  
-Refer to Figure 10-6. A change in the price of candy only is shown in

Accepted Answer

A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above panels. 
A)  Panel A. 
B)  Panel B. 
C)  Panel C. 
D)  none of the above panels.

Question 16

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making. Which economist did not receive a Nobel Prize for this work?

Accepted Answer

A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais 
A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais

Question 17

A consumer's indifference curves can never cross.

Accepted Answer

A) True 
 B)False

Question 18

When diminishing marginal utility sets in, total utility must be negative.

Accepted Answer

A) True 
 B)False

Question 19

Figure 10-3  
-Refer to Figure 10-3. Best friends 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)  Hardy enjoys romantic comedies more than Laurel. 
C)  Hardy enjoys science fiction movies more than Laurel. 
D)  The diagrams do not provide any information about relative preferences. 
A)  They have identical movie preferences. 
B)  Hardy enjoys romantic comedies more than Laurel. 
C)  Hardy enjoys science fiction movies more than Laurel. 
D)  The diagrams do not provide any information about relative preferences.

Question 20

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?

Accepted Answer

A)  You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B)  by the endowment effect 
C)  by the law of diminishing marginal utility 
D)  The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect. 
A)  You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B)  by the endowment effect 
C)  by the law of diminishing marginal utility 
D)  The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect.

Exam 10: Consumer Choice and Behavioral Economics

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Figure 10-2 Figure 10-2 represents the demand for ice cream cones. -For a demand curve to be upward sloping, the good would have to be an inferior good, and

Sunk costs

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

A network externality occurs when

Figure 10-9 -Refer to Figure 10-9. If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC1?

The French Bakery ran a special which decreased the price of its croissants from $1.50 to $1.00. Although her money income had not changed, Toni decided to buy 2 croissants instead of her usual 1 bagel and 1 croissant. Toni's actions are explained by which of the following?

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

A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.

A Giffen good could be either a normal good or an inferior good.

Figure 10-6 -Refer to Figure 10-6. A change in the price of candy only is shown in

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making. Which economist did not receive a Nobel Prize for this work?

A consumer's indifference curves can never cross.

When diminishing marginal utility sets in, total utility must be negative.

Figure 10-3 -Refer to Figure 10-3. Best friends 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?

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?

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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