Question 1

The additional utility that George receives from consuming one more slice of pizza is called

Accepted Answer

A)  average utility. 
B)  marginal utility. 
C)  total utility. 
D)  diminishing utility. 
A)  average utility. 
B)  marginal utility. 
C)  total utility. 
D)  diminishing utility.

Question 2

Optimal decisions are made

Accepted Answer

A)  in the marketplace. 
B)  if information about prices and marginal utilities is known. 
C)  when marginal utility is minimized. 
D)  at the margin. 
A)  in the marketplace. 
B)  if information about prices and marginal utilities is known. 
C)  when marginal utility is minimized. 
D)  at the margin.

Question 3

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Accepted Answer

A)  Petra's utility from her second apple was less than her satisfaction from her first orange. 
B)  Hudson enjoyed his second slice of pizza more than his first. 
C)  Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D)  Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant. 
A)  Petra's utility from her second apple was less than her satisfaction from her first orange. 
B)  Hudson enjoyed his second slice of pizza more than his first. 
C)  Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar. 
D)  Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Question 4

Gowri has $6 per day to purchase lunch. She spends all of her lunch money on pizza and iced-tea. The price of pizza is $2.00 per slice and iced-tea costs $1 per bottle.
a. Draw Gowri's budget constraint and label it BC0. Put pizza on the horizontal axis and iced-tea on the vertical axis. Be sure to identify the intercept values.
b. If the price of iced-tea rises to $1.20 per bottle, show what will happen to her budget constraint in your diagram. Be sure to indicate any new intercept values.

Accepted Answer

a. @#IMG-DLM& b. BC1 in the fi

Question 5

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?

Accepted Answer

A)  The marginal utility of video rentals is negative. 
B)  The marginal utility per dollar spent on books exceeds that of video rentals. 
C)  The marginal utility of the last book consumed exceeds the marginal utility of the last video rental consumed. 
D)  The marginal utility of the last video rental consumed exceeds the marginal utility of the last book consumed. 
A)  The marginal utility of video rentals is negative. 
B)  The marginal utility per dollar spent on books exceeds that of video rentals. 
C)  The marginal utility of the last book consumed exceeds the marginal utility of the last video rental consumed. 
D)  The marginal utility of the last video rental consumed exceeds the marginal utility of the last book consumed.

Question 6

Table 10-4
  
-Refer to Table 10-4. For steak and cheese and grilled chicken sandwiches, the table contains the values of the marginal utility (MU) and marginal utility per dollar (MU/P) for Mabel Jarvis. Mabel has $14 to spend on steak and cheese and grilled chicken sandwiches. Which of the following statements is false?

Accepted Answer

A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximizes her utility, she will buy three grilled chicken sandwiches. 
C)  If Mabel maximizes her utility, she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility. 
A)  The price of steak and cheese sandwiches is $4. The price of grilled chicken sandwiches is $2. 
B)  If Mabel maximizes her utility, she will buy three grilled chicken sandwiches. 
C)  If Mabel maximizes her utility, she will buy two steak and cheese sandwiches. 
D)  We do not have enough information to determine how many sandwiches Mabel will buy to maximize her utility.

Question 7

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?

Accepted Answer

A)  Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct, but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent. 
A)  Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola. 
B)  Peter's statement is correct. 
C)  Peter's statement is correct, but we must also assume that the consumer is rational. 
D)  Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent.

Question 8

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

Accepted Answer

A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions, and quantity demanded increases. 
D)  work in opposite directions, and quantity demanded decreases. 
A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions, and quantity demanded increases. 
D)  work in opposite directions, and quantity demanded decreases.

Question 9

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

Accepted Answer

A) True 
 B)False

Question 10

If you exhibit the endowment effect as a decision maker, then you are

Accepted Answer

A)  deciding on the basis of sunk costs. 
B)  buying something you can't really afford because you expect to save in the future. 
C)  ignoring non-monetary opportunity costs. 
D)  consuming based on celebrity endorsements. 
A)  deciding on the basis of sunk costs. 
B)  buying something you can't really afford because you expect to save in the future. 
C)  ignoring non-monetary opportunity costs. 
D)  consuming based on celebrity endorsements.

Question 11

Along a downward-sloping linear demand curve,

Accepted Answer

A)  the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B)  the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C)  the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D)  the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant. 
A)  the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. 
B)  the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. 
C)  the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. 
D)  the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Question 12

Suppose you pre-ordered a non-refundable movie ticket to X-Men: Days of Future Past. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

Accepted Answer

A)  Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  You should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility. 
A)  Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  You should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility.

Question 13

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

Accepted Answer

A)  income and hold everything else constant. 
B)  tastes and preferences and hold everything else constant. 
C)  the price of the product and hold everything else constant. 
D)  the price of a close substitute and hold everything else constant. 
A)  income and hold everything else constant. 
B)  tastes and preferences and hold everything else constant. 
C)  the price of the product and hold everything else constant. 
D)  the price of a close substitute and hold everything else constant.

Question 14

The only Giffen goods that have been identified so far in the real world are luxury goods.

Accepted Answer

A) True 
 B)False

Question 15

In the utility maximizing model, consumer preferences are assumed to be transitive. What does this mean?

Accepted Answer

A)  that consumers prefer more of a good to less 
B)  that consumers have the freedom to change their preferences from time to time 
C)  that consumers have preferences that are relatively consistent in the time period under consideration 
D)  that consumers go through cycles in their consumption behavior 
A)  that consumers prefer more of a good to less 
B)  that consumers have the freedom to change their preferences from time to time 
C)  that consumers have preferences that are relatively consistent in the time period under consideration 
D)  that consumers go through cycles in their consumption behavior

Question 16

The observation that people tend to value something more highly when they own it than when they don't is called the

Accepted Answer

A)  wealth effect. 
B)  endowment effect. 
C)  path dependent effect. 
D)  endorsement effect. 
A)  wealth effect. 
B)  endowment effect. 
C)  path dependent effect. 
D)  endorsement effect.

Question 17

Consider a downward-sloping demand curve. When the price of an inferior good decreases, the income and substitution effects

Accepted Answer

A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions, and quantity demanded increases. 
D)  work in opposite directions, and quantity demanded decreases. 
A)  work in the same direction to increase quantity demanded. 
B)  work in the same direction to decrease quantity demanded. 
C)  work in opposite directions, and quantity demanded increases. 
D)  work in opposite directions, and quantity demanded decreases.

Question 18

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

Accepted Answer

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

Question 19

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)  the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it. 
B)  the tendency for consumers to account for monetary costs but to ignore sunk costs. 
C)  consumers placing a high value on a product because it makes them appear to be fashionable. 
D)  the law of demand. 
A)  the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it. 
B)  the tendency for consumers to account for monetary costs but to ignore sunk costs. 
C)  consumers placing a high value on a product because it makes them appear to be fashionable. 
D)  the law of demand.

Question 20

The income effect of a price change refers to

Accepted Answer

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

Exam 10: Consumer Choice and Behavioral Economics

The additional utility that George receives from consuming one more slice of pizza is called

Optimal decisions are made

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

If by purchasing more apples and fewer oranges you increase your total utility, then apples must be cheaper than oranges.

If you exhibit the endowment effect as a decision maker, then you are

Along a downward-sloping linear demand curve,

Suppose you pre-ordered a non-refundable movie ticket to X-Men: Days of Future Past. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do?

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

The only Giffen goods that have been identified so far in the real world are luxury goods.

In the utility maximizing model, consumer preferences are assumed to be transitive. What does this mean?

The observation that people tend to value something more highly when they own it than when they don't is called the

Consider a downward-sloping demand curve. When the price of an inferior good decreases, the income and substitution effects

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

The income effect of a price change refers to

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