Question 1

Which of the following is not a characteristic of indifference curves?

Accepted Answer

A)  Indifference curves cannot intersect. 
B)  Indifference curves are usually bowed in, or convex. 
C)  The slope of an indifference curve is negative. 
D)  The closer to the origin, the greater the utility level. 
A)  Indifference curves cannot intersect. 
B)  Indifference curves are usually bowed in, or convex. 
C)  The slope of an indifference curve is negative. 
D)  The closer to the origin, the greater the utility level.

Question 2

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that

Accepted Answer

A)  consumers are always rational. 
B)  in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs. 
C)  there is no good evidence that switching costs exist. 
D)  the government will prevent products with inferior technology from being sold to consumers. 
A)  consumers are always rational. 
B)  in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs. 
C)  there is no good evidence that switching costs exist. 
D)  the government will prevent products with inferior technology from being sold to consumers.

Question 3

Traditionally, economists have considered culture, customs, and religion as

Accepted Answer

A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis. 
A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis.

Question 4

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

Accepted Answer

A)  a normal good; very small 
B)  an inferior good; very small 
C)  a normal good; very large 
D)  an inferior good; very large 
A)  a normal good; very small 
B)  an inferior good; very small 
C)  a normal good; very large 
D)  an inferior good; very large

Question 5

You wish to buy only one CD. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) Usher's latest CD for $15 which gives you 75 units of utility, or (b) Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

Accepted Answer

You should buy the Tom Petty C

Question 6

An item has utility for a consumer if it

Accepted Answer

A)  is scarce. 
B)  has a high price. 
C)  is something everyone else wants. 
D)  generates enjoyment or satisfaction. 
A)  is scarce. 
B)  has a high price. 
C)  is something everyone else wants. 
D)  generates enjoyment or satisfaction.

Question 7

Figure 10-6  
-Refer to Figure 10-6. Which diagram demonstrates an increase in total utility following a decrease in the price of popcorn?

Accepted Answer

A)  the movement from d to e in Panel A 
B)  the movement from f to g in Panel B 
C)  the movement from h to k in Panel C 
D)  none of the above 
A)  the movement from d to e in Panel A 
B)  the movement from f to g in Panel B 
C)  the movement from h to k in Panel C 
D)  none of the above

Question 8

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. Suppose Keira's income increases from $18 to $23 but prices have not changed. What is her utility maximizing bundle now?

Accepted Answer

A)  6 cups of soup and 5 sandwiches 
B)  4 cups of soup and 5 sandwiches 
C)  5 cups of soup and 4 sandwiches 
D)  5 cups of soup and 5 sandwiches 
A)  6 cups of soup and 5 sandwiches 
B)  4 cups of soup and 5 sandwiches 
C)  5 cups of soup and 4 sandwiches 
D)  5 cups of soup and 5 sandwiches

Question 9

All consumption bundles along a given indifference curve are equally desirable.

Accepted Answer

A) True 
 B)False

Question 10

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 an example of

Accepted Answer

A)  rational consumer behavior. 
B)  the endowment effect. 
C)  the fallacy of composition. 
D)  the failure to ignore sunk costs. 
A)  rational consumer behavior. 
B)  the endowment effect. 
C)  the fallacy of composition. 
D)  the failure to ignore sunk costs.

Question 11

Article Summary
The article describes three key ways startup companies can get the most benefit from celebrity endorsements. One way is choosing a celebrity that can bring credibility to the company and then incorporating the celebrity into the company's marketing strategy. Second, get public relations value from the celebrity by offering exclusive interviews, contests, and photos and videos of the celebrity with the product. Finally, make sure to choose a celebrity who will represent the product at all times, giving the product maximum exposure.
Source: Kevin Tighe II, "3 Ways Startups Can Turn Celebrity Endorsements Into Big Gains," Forbes, March 8, 2013.
-Refer to the Article Summary. Economists refer to an increase in sales due to celebrity endorsements as being the result of

Accepted Answer

A)  network externalities. 
B)  the endowment effect. 
C)  social influence. 
D)  the ultimatum game. 
A)  network externalities. 
B)  the endowment effect. 
C)  social influence. 
D)  the ultimatum game.

Question 12

The order of the letters along the rows of computer keyboards could be changed to allow users to type faster, but this would inconvenience the vast majority of people who learned to type with the current keyboard layout. The costs of switching to a new layout make this change unlikely. This is an example of

Accepted Answer

A)  path dependency. 
B)  how social influences overwhelm the substitution effect of a price change. 
C)  how the elasticity of demand for typewriters has been affected by externalities. 
D)  how consumers sometimes do not behave rationally. 
A)  path dependency. 
B)  how social influences overwhelm the substitution effect of a price change. 
C)  how the elasticity of demand for typewriters has been affected by externalities. 
D)  how consumers sometimes do not behave rationally.

Question 13

If the price of lattes, a normal good you enjoy, falls,

Accepted Answer

A)  the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B)  both the income and substitution effects lead you to buy more lattes. 
C)  the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
D)  the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
A)  the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B)  both the income and substitution effects lead you to buy more lattes. 
C)  the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased. 
D)  the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased.

Question 14

The slope of the indifference curve is referred to as

Accepted Answer

A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal tradeoff rate. 
A)  the marginal rate of substitution. 
B)  the price ratio. 
C)  the marginal rate of consumption. 
D)  the marginal tradeoff rate.

Question 15

Figure 10-6  
-Refer to Figure 10-6. A change in the price of popcorn 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

If a consumer always buys goods rationally, then

Accepted Answer

A)  the total utilities of the different goods consumed will be equal. 
B)  the average utilities of the different goods consumed will be equal. 
C)  the marginal utility per dollar spent on all goods will be equal. 
D)  the marginal utility of the different goods consumed will be equal. 
A)  the total utilities of the different goods consumed will be equal. 
B)  the average utilities of the different goods consumed will be equal. 
C)  the marginal utility per dollar spent on all goods will be equal. 
D)  the marginal utility of the different goods consumed will be equal.

Question 17

Molly received an autographed poster of David Hasselhoff for her 21st birthday. Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed. Explain this inconsistency in Molly's behavior.

Accepted Answer

The inconsistency comes from Molly's fai

Question 18

Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

Accepted Answer

A)  2,000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility. 
A)  2,000 units of utility. 
B)  500 units of utility. 
C)  100 units of utility. 
D)  80 units of utility.

Question 19

What is the marginal rate of substitution?

Accepted Answer

A)  the price ratio 
B)  the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market 
C)  the rate at which the consumer is willing to trade one good for another so that she increases her utility 
D)  the rate at which the consumer is willing to trade one good for another without any loss in utility 
A)  the price ratio 
B)  the rate at which the consumer must give up one good to purchase an additional unit of the other goods in the market 
C)  the rate at which the consumer is willing to trade one good for another so that she increases her utility 
D)  the rate at which the consumer is willing to trade one good for another without any loss in utility

Question 20

Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game. He chooses Jasmine to be the allocator and Cassandra to be the recipient. He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra. If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money. If Cassandra decides to reject her allocation, neither student gets to keep the money. How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Accepted Answer

If both students care about fairness, ea

Exam 10: Consumer Choice and Behavioral Economics

Which of the following is not a characteristic of indifference curves?

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that

Traditionally, economists have considered culture, customs, and religion as

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

You wish to buy only one CD. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) Usher's latest CD for $15 which gives you 75 units of utility, or (b) Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

An item has utility for a consumer if it

Figure 10-6 -Refer to Figure 10-6. Which diagram demonstrates an increase in total utility following a decrease in the price of popcorn?

All consumption bundles along a given indifference curve are equally desirable.

If the price of lattes, a normal good you enjoy, falls,

The slope of the indifference curve is referred to as

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

If a consumer always buys goods rationally, then

What is the marginal rate of substitution?

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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Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be and make up a portion of a consumer's budget.