Exam 10: Consumer Choice and Behavioral Economics

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

If a consumer receives 22 units of marginal utility for consuming the first can of soda,20 units from consuming the second,and 15 from the third,the total utility of consuming the three units is

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: "Imagine that you have decided to see a play and paid the admission price of $10 per ticket.As you enter the theater you discover that you have lost the ticket.The seat was not marked and the ticket cannot be recovered.Would you pay $10 for another ticket?" Scenario B: "Imagine that you have decided to see a play where admission is $10 per ticket.As you enter the theater you discover that you have lost a $10 bill.Would you still pay $10 for a ticket for the play?" As long as additional tickets are available,there's no meaningful difference between losing $10 in cash before buying a ticket,and losing the $10 ticket after buying it.In both cases,you are out $10.Yet,far more subjects (88 percent)in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A,only 46 percent of the subjects say they would be willing to spend another $10 to see the play. Which of the following is the best explanation for the results of the experiment? A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B.

What must be true in terms of the income effect,the substitution effect,and the type of good for the good's demand curve to be upward sloping?

Table 10-1 Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 10-1 shows his total utility from different quantities of the two items. -Refer to Table 10-1.What is Keegan's optimal consumption bundle?

Economists would refer to the increase in product sales because of celebrity endorsements as being the result of

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 changed from $18 to $23,her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels,what type of goods are soup and sandwiches?

An item has utility for a consumer if it

Which of the following demonstrates the endowment effect?

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?

The law of diminishing marginal utility states that

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

Figure 10-6 Manuri has $300 to spend on Pilates classes and Yoga classes. The price of a group Pilates class is $20 and the price of a group Yoga class is $10. Manuri's optimal bundle is given by "A" in Figure 9-6. -Refer to Figure 10-6.Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged.The substitution effect of this price change is represented by the movement from A) A to B. B) A to C. C) A to D. D) D to B.

As a consumer consumes more and more of a product in a particular time period,eventually marginal utility

Jamal,Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala,a popular new Japanese restaurant.It is possible that some of the people in line won't be served at all before the restaurant closes.Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a.In situations where consumption takes place publicly,demand for the product is also influenced by how many other people are buying the product.Consequently,a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity. B)Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers. C)The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits. A) a only B) a and b only C) a and c only D) a, b, and c

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

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

If you received negative marginal utility from consuming the 4th slice of pizza,then your total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.

Most people would prefer to drive a luxury car that has all the options,but more people buy less expensive cars even though they could afford the luxury car because