Question 1

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive,this is called

Accepted Answer

A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect. 
A)  the substitution effect. 
B)  the income effect. 
C)  the deadweight loss effect. 
D)  the elasticity effect.

Question 2

Consider a downward-sloping demand curve.When the price of a normal 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 3

A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

Accepted Answer

A)  the indifference curve that intersects the horizontal axis. 
B)  the indifference curve that intersects the vertical axis. 
C)  an indifference curve that is tangent to the budget constraint. 
D)  the budget constraint where it intersects one of the axes. 
A)  the indifference curve that intersects the horizontal axis. 
B)  the indifference curve that intersects the vertical axis. 
C)  an indifference curve that is tangent to the budget constraint. 
D)  the budget constraint where it intersects one of the axes.

Question 4

Research conducted by Professors Cass Sunstein and Richard Thaler show that employees are much more likely to enroll in a savings plan under automatic enrollment than under a default term of non-enrollment because it turns out that very few employees drop out if automatically enrolled. Source: Sunstein,Cass R.and Richard H.Thaler.2003."Libertarian Paternalism Is Not an Oxymoron," University of Chicago Law Review,70:1159-1202.
What does this suggest about getting people to save for their retirement?

Accepted Answer

A)  Planning for one's retirement is complex and emotional and most people deliberately avoid confronting these financial decisions. 
B)  People are overly pessimistic about their future financial prospects; many fear that the social security scheme may be non-existent by the time they retire. 
C)  Many people need to be "tricked" into saving because they are unrealistic about their future behavior. They spend money today that they should be saving for retirement, partly because they overestimate their ability to save in the future. 
D)  One way to get people to save more is to make mandatory contributions to a saving plan part and parcel of employment, and to make opting-out legally impossible. 
A)  Planning for one's retirement is complex and emotional and most people deliberately avoid confronting these financial decisions. 
B)  People are overly pessimistic about their future financial prospects; many fear that the social security scheme may be non-existent by the time they retire. 
C)  Many people need to be "tricked" into saving because they are unrealistic about their future behavior. They spend money today that they should be saving for retirement, partly because they overestimate their ability to save in the future. 
D)  One way to get people to save more is to make mandatory contributions to a saving plan part and parcel of employment, and to make opting-out legally impossible.

Question 5

Many celebrities are paid to endorse products,but celebrity endorsements do come with risks.Once a firm is associated with a celebrity,consumers associate the product with the celebrity.This association can turn negative if the celebrity gets arrested or becomes associated with an embarrassing scandal.Should a company whose celebrity endorser was just arrested be guided by the amount it has already poured into making ads featuring the celebrity in its decision about whether or not to cancel the ad campaign?

Accepted Answer

A)  Yes, even in the case of negative publicity, celebrity endorsements really do have a significant effect on consumer choice so the amount already spent to purchase this endorsement is relevant. 
B)  No, the amount spent to launch the campaign is a sunk cost; the firm's primary concern at this point is the effect of the negative publicity on the product's image. 
C)  Yes, a firm must take in all costs in deciding whether or not to yank the campaign. If the revenue loss (due to the negative publicity) is small compared to the cost of the campaign, then it makes sense to continue the campaign. 
D)  No, although the amount spent to launch the campaign cannot be recovered, the firm can still reap some benefit by taking out another ad in support of the celebrity. 
A)  Yes, even in the case of negative publicity, celebrity endorsements really do have a significant effect on consumer choice so the amount already spent to purchase this endorsement is relevant. 
B)  No, the amount spent to launch the campaign is a sunk cost; the firm's primary concern at this point is the effect of the negative publicity on the product's image. 
C)  Yes, a firm must take in all costs in deciding whether or not to yank the campaign. If the revenue loss (due to the negative publicity) is small compared to the cost of the campaign, then it makes sense to continue the campaign. 
D)  No, although the amount spent to launch the campaign cannot be recovered, the firm can still reap some benefit by taking out another ad in support of the celebrity.

Question 6

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 7

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 8

Giffen goods

Accepted Answer

A)  are theoretical and have never been discovered in the real world. 
B)  have not existed since prior to the Industrial Revolution. 
C)  were proven to exist in the 1890s by Sir Robert Giffen. 
D)  were not shown to actually exist until 2006. 
A)  are theoretical and have never been discovered in the real world. 
B)  have not existed since prior to the Industrial Revolution. 
C)  were proven to exist in the 1890s by Sir Robert Giffen. 
D)  were not shown to actually exist until 2006.

Question 9

A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used in computer keyboards today).What is this phenomenon called?

Accepted Answer

A)  network externalities 
B)  path dependency 
C)  sunk cost 
D)  comparative advantage 
A)  network externalities 
B)  path dependency 
C)  sunk cost 
D)  comparative advantage

Question 10

A network externality occurs when

Accepted Answer

A)  there is production cost savings from being networked with suppliers. 
B)  there is production cost savings from being networked with buyers. 
C)  the usefulness of a good is affected by how many others use the good. 
D)  the usefulness of a good is affected by celebrities who use the good. 
A)  there is production cost savings from being networked with suppliers. 
B)  there is production cost savings from being networked with buyers. 
C)  the usefulness of a good is affected by how many others use the good. 
D)  the usefulness of a good is affected by celebrities who use the good.

Question 11

The demand curve for a Giffen good is

Accepted Answer

A)  non-linear but downward-sloping. 
B)  vertical. 
C)  upward-sloping. 
D)  non-existent. 
A)  non-linear but downward-sloping. 
B)  vertical. 
C)  upward-sloping. 
D)  non-existent.

Question 12

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) 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

Accepted Answer

The answer of Consider the following factors: a.culture
B)religion
C)customs
D)prices
E)income
Which of the...

Question 13

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Accepted Answer

A)  the price of protein supplements. has to fall. 
B)  the price of sports magazines has to fall. 
C)  the price of sports magazines has to rise. 
D)  Since Avner is maximizing his utility, nothing can change the consumption of sports magazines. 
A)  the price of protein supplements. has to fall. 
B)  the price of sports magazines has to fall. 
C)  the price of sports magazines has to rise. 
D)  Since Avner is maximizing his utility, nothing can change the consumption of sports magazines.

Question 14

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Accepted Answer

A)  technology 
B)  the satisfaction people derive by being viewed as "fashionable" 
C)  cost-effective way to gather information about a product 
D)  differences in tastes and preferences 
A)  technology 
B)  the satisfaction people derive by being viewed as "fashionable" 
C)  cost-effective way to gather information about a product 
D)  differences in tastes and preferences

Exam 10: Consumer Choice and Behavioral Economics

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive,this is called

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

A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

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

Behavioral economics is the study of situations in which people make rational choices.

Giffen goods

A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used in computer keyboards today).What is this phenomenon called?

A network externality occurs when

The demand curve for a Giffen good 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) 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

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Which of the following does not explain why consumers buy products that many other consumers are already buying?

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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