Exam 10: Consumer Choice and Behavioral Economics

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

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good,where the income effect is larger than its substitution effect?

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

In explaining consumer behavior economists explain how consumer tastes and preferences are formed.

What happens to the absolute value of marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?

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

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

Figure 10-3 -Refer to Figure 10-3.Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

The income effect of a price change refers to

A construction project in Congressman Foghorn's district is unfinished.Foghorn has asked that a new appropriations bill include funds to complete the project,despite a report by an independent agency that the project is a waste of taxpayer money.Foghorn's project is a bridge that crosses a river between two cities in his district.The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge,located closer to the same two cities Foghorn's bridge will connect,already exists and can accommodate all traffic between the two cities.Foghorn argues that if the bridge project is not completed,the $50 million already spent will have been wasted.Is Foghorn's argument economically rational? Explain your answer.

Wilbur Rickhiser,a financial advisor,recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss.Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report.Many of my clients in this situation will hold the stock,hoping the price will later rise above $50.In most cases like this the price does not rise and may even fall.You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice?

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.

Figure 10-7 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 10-7. -Refer to Figure 10-7.Suppose the price of Pilates sessions rise to $30 while income and the price of Yoga sessions remain unchanged.The income effect of this price change is represented by the movement from

Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website,MacRumors.com,became so successful that he decided to give up his medical career and work full time on his Website,despite the nearly $200,000 he had invested in his education.In making his decision,Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a

Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was the maximum price he was willing to pay.On the day of the performance of the play Adam refuses to sell the ticket for $150.How would behavioral economists explain Adam's refusal to sell his ticket?

Consumers have to make tradeoffs in deciding what to consume because

The amount of income a consumer has to spend on goods and services is known as

Figure 10-5 -Refer to Figure 10-5.Which of the following statements is true?

One reason that consumers and businesses might not act rationally is

Goods with upward sloping demand curves are referred to as