Question 1

Which of the following demonstrates the endowment effect?

Accepted Answer

A)  Whelan inherits a cottage in Cape Cod from his grandfather and is unwilling to sell it for sentimental reasons. 
B)  Robert Pattinson commands a premium in the movie industry because he is endowed with dashing looks. 
C)  Isabella was not willing to part with her "Robert Pattinson" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster. 
D)  If you received a good as a gift, you are less likely to attach a monetary value to the good. 
A)  Whelan inherits a cottage in Cape Cod from his grandfather and is unwilling to sell it for sentimental reasons. 
B)  Robert Pattinson commands a premium in the movie industry because he is endowed with dashing looks. 
C)  Isabella was not willing to part with her "Robert Pattinson" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster. 
D)  If you received a good as a gift, you are less likely to attach a monetary value to the good. C

Question 2

The slope of an indifference curve

Accepted Answer

A)  is calculated by dividing the price of good on the vertical axis by price of the good on the horizontal axis. 
B)  measures total utility. 
C)  measures the marginal rate of substitution between the two goods in question. 
D)  is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis. 
A)  is calculated by dividing the price of good on the vertical axis by price of the good on the horizontal axis. 
B)  measures total utility. 
C)  measures the marginal rate of substitution between the two goods in question. 
D)  is calculated by dividing the quantity of the good on the vertical axis by the quantity of the good on the horizontal axis. C

Question 3

Sunk costs

Accepted Answer

A)  are costs associated with repairing something you already own. 
B)  are important for optimal decision making. 
C)  are costs that have already been paid and cannot be recaptured in any significant way. 
D)  are costs that firms sink into marketing. 
A)  are costs associated with repairing something you already own. 
B)  are important for optimal decision making. 
C)  are costs that have already been paid and cannot be recaptured in any significant way. 
D)  are costs that firms sink into marketing. C

Question 4

The satisfaction a person receives from consuming goods and services is called

Accepted Answer

A)  contentment. 
B)  psychic income. 
C)  wealth. 
D)  utility. 
A)  contentment. 
B)  psychic income. 
C)  wealth. 
D)  utility.

Question 5

Utility is

Accepted Answer

A)  easily measured in units called utils. 
B)  subjective and difficult to measure. 
C)  the consumption of a quasi-public good like electricity or natural gas. 
D)  the production of a quasi-public good like electricity or natural gas. 
A)  easily measured in units called utils. 
B)  subjective and difficult to measure. 
C)  the consumption of a quasi-public good like electricity or natural gas. 
D)  the production of a quasi-public good like electricity or natural gas.

Question 6

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

Accepted Answer

A)  shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B)  shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C)  shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D)  shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline. 
A)  shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. 
B)  shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. 
C)  shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. 
D)  shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline.

Question 7

Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?

Accepted Answer

A)  He is not maximizing his utility and should buy more milkshakes. 
B)  He is maximizing his utility. 
C)  He is not maximizing his utility and should buy more Subway sandwiches. 
D)  He is not maximizing his utility because he is not spending all of his income. 
A)  He is not maximizing his utility and should buy more milkshakes. 
B)  He is maximizing his utility. 
C)  He is not maximizing his utility and should buy more Subway sandwiches. 
D)  He is not maximizing his utility because he is not spending all of his income.

Question 8

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making.Which economist did not receive a Nobel Prize for this work?

Accepted Answer

A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais 
A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais

Question 9

If the marginal utility Ida Mae receives from eating chicken wings is negative then

Accepted Answer

A)  her total utility from eating chicken wings has fallen. 
B)  her total utility from eating chicken wings is negative as well. 
C)  Ida Mae definitely does not like chicken wings. 
D)  her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing. 
A)  her total utility from eating chicken wings has fallen. 
B)  her total utility from eating chicken wings is negative as well. 
C)  Ida Mae definitely does not like chicken wings. 
D)  her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing.

Question 10

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 11

What is a Giffen good?

Accepted Answer

A Giffen good is something con

Question 12

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 13

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions,yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

Accepted Answer

A)  People measure the value of a good in terms of its purchase price. 
B)  Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value. 
C)  If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions. 
D)  Sunk costs have a higher opportunity cost than costs that can be recovered. 
A)  People measure the value of a good in terms of its purchase price. 
B)  Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value. 
C)  If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions. 
D)  Sunk costs have a higher opportunity cost than costs that can be recovered.

Question 14

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

Accepted Answer

A)  failing to ignore sunk costs. 
B)  being overly optimistic about their future behavior. 
C)  not taking nonmonetary opportunity costs into account. 
D)  not making themselves aware of the policy regarding refunds. 
A)  failing to ignore sunk costs. 
B)  being overly optimistic about their future behavior. 
C)  not taking nonmonetary opportunity costs into account. 
D)  not making themselves aware of the policy regarding refunds.

Question 15

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 16

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 17

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Accepted Answer

A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples. 
A)  total utility to decrease. 
B)  a consumer to get no satisfaction from consuming apples. 
C)  a consumer's total utility to increase. 
D)  a consumer to go beyond her optimal consumption of apples.

Question 18

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

Accepted Answer

A)  consumers will always buy goods and services at the lowest possible prices. 
B)  consumers spend their incomes to order to accumulate the most goods and services. 
C)  consumers make choices that will leave them as satisfied as possible given their incomes, tastes and the prices of goods and services available to them. 
D)  consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others. 
A)  consumers will always buy goods and services at the lowest possible prices. 
B)  consumers spend their incomes to order to accumulate the most goods and services. 
C)  consumers make choices that will leave them as satisfied as possible given their incomes, tastes and the prices of goods and services available to them. 
D)  consumers will spend their incomes and time on activities that benefit themselves as much as possible, without regard to the welfare of others.

Question 19

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  MU/P has increased and Ewan should buy more of this good. 
B)  MU/P has increased and Ewan should buy less of this good. 
C)  MU/P has decreased and Ewan should buy more of this good. 
D)  MU/P has decreased and Ewan should buy less of this good. 
A)  MU/P has increased and Ewan should buy more of this good. 
B)  MU/P has increased and Ewan should buy less of this good. 
C)  MU/P has decreased and Ewan should buy more of this good. 
D)  MU/P has decreased and Ewan should buy less of this good.

Which of the following demonstrates the endowment effect?

The slope of an indifference curve

Sunk costs

The satisfaction a person receives from consuming goods and services is called

Utility is

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making.Which economist did not receive a Nobel Prize for this work?

If the marginal utility Ida Mae receives from eating chicken wings is negative then

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

What is a Giffen good?

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions,yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

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

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

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

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

Filters

Exam 10: Consumer Choice and Behavioral Economics

Which of the following demonstrates the endowment effect?

The slope of an indifference curve

Sunk costs

The satisfaction a person receives from consuming goods and services is called

Utility is

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making.Which economist did not receive a Nobel Prize for this work?

If the marginal utility Ida Mae receives from eating chicken wings is negative then

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

What is a Giffen good?

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions,yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

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

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Economists usually assume that people act in a rational,self-interested way.In explaining how consumers make choices this means that economists believe

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

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

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

Filters