Question 1

The endowment effect suggests that that people

Accepted Answer

A)  have a strong attachment to their entitlement, regardless of whether they paid to acquire them. 
B)  have a strong sense of fairness. 
C)  are concerned about the welfare of others. 
D)  act in ways to distort market prices. 
A)  have a strong attachment to their entitlement, regardless of whether they paid to acquire them. 
B)  have a strong sense of fairness. 
C)  are concerned about the welfare of others. 
D)  act in ways to distort market prices.

Question 2

Some online penny auctions charge a fee, such as $1, for every bid placed. Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Accepted Answer

The $1 charge per bid should be consider

Question 3

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Accepted Answer

A) True 
 B)False

Question 4

What is the endowment effect?

Accepted Answer

A)  the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B)  the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. 
D)  the tendency of firms to use celebrities endowed with good looks to promote their products 
A)  the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency 
B)  the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services 
C)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. 
D)  the tendency of firms to use celebrities endowed with good looks to promote their products

Question 5

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

Accepted Answer

A)  is maximizing total utility and does not want to change their consumption of ankle socks or bandanas. 
B)  wants to consume more ankle socks and fewer bandanas. 
C)  wants to consume more of bandanas and fewer ankle socks. 
D)  wants to consume less of both ankle sock and bandanas. 
A)  is maximizing total utility and does not want to change their consumption of ankle socks or bandanas. 
B)  wants to consume more ankle socks and fewer bandanas. 
C)  wants to consume more of bandanas and fewer ankle socks. 
D)  wants to consume less of both ankle sock and bandanas.

Question 6

The substitution effect of a decrease in the price of movie tickets results in

Accepted Answer

A)  an increase in the quantity demanded of movie tickets. 
B)  a decrease in the quantity demanded of movie tickets. 
C)  an increase in the demand for movie tickets. 
D)  a decrease in the demand for movie tickets. 
A)  an increase in the quantity demanded of movie tickets. 
B)  a decrease in the quantity demanded of movie tickets. 
C)  an increase in the demand for movie tickets. 
D)  a decrease in the demand for movie tickets.

Question 7

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office 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 8

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

Accepted Answer

A)  Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B)  The substitution effect causes the consumer to buy less of the good, and the income effect causes the consumer to buy more of the good. 
C)  The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D)  The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease. 
A)  Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B)  The substitution effect causes the consumer to buy less of the good, and the income effect causes the consumer to buy more of the good. 
C)  The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D)  The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease.

Question 9

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

Accepted Answer

A)  the high value fans place on watching the Super Bowl in person, rather than on television. 
B)  the failure of consumers to take into account nonmonetary opportunity costs. 
C)  the failure of consumers to ignore sunk costs. 
D)  consumers being overly optimistic about their future behavior. 
A)  the high value fans place on watching the Super Bowl in person, rather than on television. 
B)  the failure of consumers to take into account nonmonetary opportunity costs. 
C)  the failure of consumers to ignore sunk costs. 
D)  consumers being overly optimistic about their future behavior.

Question 10

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

Accepted Answer

A)  the law of demand. 
B)  the law of supply. 
C)  the law of increasing marginal opportunity cost. 
D)  the law of diminishing marginal utility. 
A)  the law of demand. 
B)  the law of supply. 
C)  the law of increasing marginal opportunity cost. 
D)  the law of diminishing marginal utility.

Question 11

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

Accepted Answer

A)  consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry. 
B)  a government-imposed price ceiling on airline ticket prices left the airlines no other way to cover the increase in costs. 
C)  adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets. 
D)  consumers see it as fair for firms to raise prices after an increase in costs. 
A)  consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry. 
B)  a government-imposed price ceiling on airline ticket prices left the airlines no other way to cover the increase in costs. 
C)  adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets. 
D)  consumers see it as fair for firms to raise prices after an increase in costs.

Question 12

What is the endowment effect?

Accepted Answer

A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years 
A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D)  the sum total of assets that a person has acquired over the years

Question 13

Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

Accepted Answer

A) True 
 B)False

Question 14

Explain the concept of network externalities.

Accepted Answer

A network externality is a sit

Question 15

Consider a good whose consumption takes place publicly. Your decision to buy that good depends

Accepted Answer

A)  both on the characteristics of the product and on how many other people are buying the good. 
B)  only on the characteristics of the good. 
C)  only on how many other people buy the good. 
D)  only on the price of the good. 
A)  both on the characteristics of the product and on how many other people are buying the good. 
B)  only on the characteristics of the good. 
C)  only on how many other people buy the good. 
D)  only on the price of the good.

Question 16

A significant downside to network externalities is that

Accepted Answer

A)  there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B)  firms may network with unethical suppliers or distributors. 
C)  the costs of hiring celebrity endorsements may be very high. 
D)  there may be large switching costs to firms changing technologies. 
A)  there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B)  firms may network with unethical suppliers or distributors. 
C)  the costs of hiring celebrity endorsements may be very high. 
D)  there may be large switching costs to firms changing technologies.

Question 17

The income effect of an increase in the price of salmon

Accepted Answer

A)  is the change in the demand for salmon when income increases. 
B)  refers to the relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon. 
C)  refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. 
D)  is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power. 
A)  is the change in the demand for salmon when income increases. 
B)  refers to the relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon. 
C)  refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. 
D)  is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power.

Question 18

If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs, then

Accepted Answer

A)  his total utility from eating hot dogs is negative. 
B)  the marginal utility from the next hot dog Joey eats will be negative. 
C)  the additional satisfaction he receives from eating another hot dog will be less than the satisfaction he received from his eating his last hot dog. 
D)  Joey is maximizing the marginal utility per dollar he receives from eating hot dogs. 
A)  his total utility from eating hot dogs is negative. 
B)  the marginal utility from the next hot dog Joey eats will be negative. 
C)  the additional satisfaction he receives from eating another hot dog will be less than the satisfaction he received from his eating his last hot dog. 
D)  Joey is maximizing the marginal utility per dollar he receives from eating hot dogs.

Question 19

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximize his utility, what should Harold do?

Accepted Answer

A)  He should acquire more income so that he can afford to buy more oranges and pears. 
B)  He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C)  He should buy fewer pears and more oranges. 
D)  He should buy fewer oranges and more pears. 
A)  He should acquire more income so that he can afford to buy more oranges and pears. 
B)  He should reduce his consumption of both oranges and pears so that he can buy a greater variety of goods. 
C)  He should buy fewer pears and more oranges. 
D)  He should buy fewer oranges and more pears.

Question 20

If, when you consume another piece of candy, your marginal utility is zero, then

Accepted Answer

A)  you want more candy. 
B)  you have maximized your total utility from consuming candy. 
C)  you have not yet reached the point of diminishing marginal utility. 
D)  you should consume less candy. 
A)  you want more candy. 
B)  you have maximized your total utility from consuming candy. 
C)  you have not yet reached the point of diminishing marginal utility. 
D)  you should consume less candy.

Exam 10: Consumer Choice and Behavioral Economics

The endowment effect suggests that that people

Some online penny auctions charge a fee, such as $1, for every bid placed. Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

What is the endowment effect?

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

The substitution effect of a decrease in the price of movie tickets results in

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

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

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

What is the endowment effect?

Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

Explain the concept of network externalities.

Consider a good whose consumption takes place publicly. Your decision to buy that good depends

A significant downside to network externalities is that

The income effect of an increase in the price of salmon

If Joey Kobayashi experiences diminishing marginal utility from eating hot dogs, then

The marginal utility per dollar that Harold Stratton receives from oranges is greater than the marginal utility per dollar Harold receives from pears. To maximize his utility, what should Harold do?

If, when you consume another piece of candy, your marginal utility is zero, then

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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