Question 1

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

Accepted Answer

A)  Economists formerly believed they were very important but now they believe they are not important. 
B)  Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. 
C)  Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. 
D)  Economists traditionally believed they were unimportant, but many economists now believe social factors are important. 
A)  Economists formerly believed they were very important but now they believe they are not important. 
B)  Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. 
C)  Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. 
D)  Economists traditionally believed they were unimportant, but many economists now believe social factors are important.

Question 2

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

Accepted Answer

A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as much magazines as CDs. 
D)  four times as much CDs as magazines. 
A)  both goods until the marginal utility of the last CD purchased is four times the marginal utility of the last magazine purchased. 
B)  both goods until the marginal utility of the last magazine purchased is four times the marginal utility of the last CD purchased. 
C)  four times as much magazines as CDs. 
D)  four times as much CDs as magazines.

Question 3

All of the following products are most likely to have significant network externalities except

Accepted Answer

A)  cat food. 
B)  cell phones. 
C)  popular board games. 
D)  fax machines. 
A)  cat food. 
B)  cell phones. 
C)  popular board games. 
D)  fax machines.

Question 4

A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices, even for goods they buy regularly.

Accepted Answer

A)  no evidence 
B)  substantial evidence 
C)  little evidence 
D)  no reason to believe 
A)  no evidence 
B)  substantial evidence 
C)  little evidence 
D)  no reason to believe

Question 5

A sunk cost is

Accepted Answer

A)  another term that means opportunity cost. 
B)  a term used to describe the cost of capital that the owners of a firm sink into their business. 
C)  the highest valued alternative that must be given up to engage in an activity. 
D)  a cost that has already been paid and cannot be recovered. 
A)  another term that means opportunity cost. 
B)  a term used to describe the cost of capital that the owners of a firm sink into their business. 
C)  the highest valued alternative that must be given up to engage in an activity. 
D)  a cost that has already been paid and cannot be recovered.

Question 6

In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler found that

Accepted Answer

A)  most people considered it unfair for firms to raise their prices because of an increase in their costs, but fair to raise their prices after an increase in demand. 
B)  most people considered any increase in price to be unfair as it led to an increase in profits. 
C)  most people believed that low income people were hurt most by increases in prices. 
D)  most people considered an increase in price by firms following an increase in their costs to be fair but believed it was unfair for firms to raise their prices because of an increase in demand. 
A)  most people considered it unfair for firms to raise their prices because of an increase in their costs, but fair to raise their prices after an increase in demand. 
B)  most people considered any increase in price to be unfair as it led to an increase in profits. 
C)  most people believed that low income people were hurt most by increases in prices. 
D)  most people considered an increase in price by firms following an increase in their costs to be fair but believed it was unfair for firms to raise their prices because of an increase in demand.

Question 7

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?

Accepted Answer

Most people who do not act rationally do

Question 8

Figure 10-5  
-Refer to Figure 10-5. Which of the following statements is true?

Accepted Answer

A)  The consumer gets more utility from bundle r than from bundle v. 
B)  The consumer gets less utility from bundle w than from bundle v. 
C)  Bundles r, s, t and u all cost the same. 
D)  Bundles r and w are not affordable. 
A)  The consumer gets more utility from bundle r than from bundle v. 
B)  The consumer gets less utility from bundle w than from bundle v. 
C)  Bundles r, s, t and u all cost the same. 
D)  Bundles r and w are not affordable.

Question 9

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 10

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

Accepted Answer

A)  positive externalities 
B)  network externalities 
C)  external marginal utility 
D)  the impact of celebrity endorsements 
A)  positive externalities 
B)  network externalities 
C)  external marginal utility 
D)  the impact of celebrity endorsements

Question 11

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

Accepted Answer

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

Question 12

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 second 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 13

Consider the following factors: a. culture
B. religion
C. customs
D. prices
E. income
Which of the factors above are likely to influence the choices consumers make?

Accepted Answer

A)  a, d, and e only 
B)  all the factors except b 
C)  all the factors except c 
D)  d and e only 
E)  all the factors listed 
A)  a, d, and e only 
B)  all the factors except b 
C)  all the factors except c 
D)  d and e only 
E)  all the factors listed

Question 14

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called

Accepted Answer

A)  behavioral economics. 
B)  irrational economics. 
C)  social economics. 
D)  new wave economics. 
A)  behavioral economics. 
B)  irrational economics. 
C)  social economics. 
D)  new wave economics.

Question 15

The law of diminishing marginal utility states that

Accepted Answer

A)  eventually total utility falls as more of a good is consumed, other things constant. 
B)  the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. 
C)  the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. 
D)  when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant. 
A)  eventually total utility falls as more of a good is consumed, other things constant. 
B)  the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant. 
C)  the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant. 
D)  when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.

Question 16

To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is equal.

Accepted Answer

A) True 
 B)False

Question 17

Economists assume people's tastes are identical.

Accepted Answer

A) True 
 B)False

Question 18

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result. How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Accepted Answer

If the firm chooses to raise prices, con

Question 19

Figure 10-6  
-Refer to Figure 10-6. A change in income 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 20

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

Accepted Answer

A)  MU/P has increased, and Ewan should buy more of this good. 
B)  MU/P has increased, and Ewan should buy less of this good. 
C)  MU/P has decreased, and Ewan should buy more of this good. 
D)  MU/P has decreased, and Ewan should buy less of this good. 
A)  MU/P has increased, and Ewan should buy more of this good. 
B)  MU/P has increased, and Ewan should buy less of this good. 
C)  MU/P has decreased, and Ewan should buy more of this good. 
D)  MU/P has decreased, and Ewan should buy less of this good.

Exam 10: Consumer Choice and Behavioral Economics

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

Carolyn spends her income on popular magazines and music CDs. If the price of a CD is four times the price of a magazine and if Carolyn is maximizing her utility, she buys

All of the following products are most likely to have significant network externalities except

A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices, even for goods they buy regularly.

A sunk cost is

In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler found that

Figure 10-5 -Refer to Figure 10-5. Which of the following statements is true?

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

Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases?

The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,

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 second candy bar is

Consider the following factors: a. culture B. religion C. customs D. prices E. income Which of the factors above are likely to influence the choices consumers make?

A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called

The law of diminishing marginal utility states that

To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is equal.

Economists assume people's tastes are identical.

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result. How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Figure 10-6 -Refer to Figure 10-6. A change in income is shown in

If Ewan is consuming his utility maximizing bundle and the price of one good falls, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Ewan do?

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

Filters