Question 1

The highest-valued alternative that must be given up to engage in an activity is the definition of

Accepted Answer

A) utility. 
B) implicit cost. 
C) opportunity cost. 
D) economic sacrifice. 
A) utility. 
B) implicit cost. 
C) opportunity cost. 
D) economic sacrifice.

Question 2

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 3

Table 10-3
 $$\begin{array} { | c | c | c | } 
\hline & \text { Ice Cream Cones } & \text { Lime Fizz Soda } \
\hline \text { Quantity } & \boldsymbol { M } \boldsymbol { U } & \boldsymbol { M U } \
\hline 1 & 30 & 40 \
\hline 2 & 25 & 35 \
\hline 3 & 20 & 26 \
\hline 4 & 15 & 18 \
\hline 5 & 10 & 15 \
\hline 6 & 5 & 7 \
\hline
\end{array}$$
-Refer to Table 10-3.The table above shows Lee's marginal utility from consuming ice cream cones and cans of Lime Fizz Soda.Select the phrase that completes the following statement."We can determine the number of ice cream cones and cans of Lime Fizz Soda Lee should consume to maximize his utility

Accepted Answer

A) if we know what Lee's income is." 
B) if we know what Lee's income is and the price of an ice cream cone and the price of a can of Lime Fizz Soda." 
C) by adding up the marginal utilities for ice cream cones and Lime Fizz Soda." 
D) if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz Soda." 
A) if we know what Lee's income is." 
B) if we know what Lee's income is and the price of an ice cream cone and the price of a can of Lime Fizz Soda." 
C) by adding up the marginal utilities for ice cream cones and Lime Fizz Soda." 
D) if we know the values of the marginal utility per dollar for ice cream cones and Lime Fizz Soda."

Question 4

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?

Accepted Answer

A) Adam's tastes had changed from the time he bought the ticket to the time of the performance of the play. 
B) When Adam bought the ticket he was being unrealistic about his future behavior. 
C) The endowment effect explains Adam's actions.People like Adam seem to value things that they have more than the things they do not have. 
D) Adam's income probably increased between the time he bought the ticket and the day of the play's performance. 
A) Adam's tastes had changed from the time he bought the ticket to the time of the performance of the play. 
B) When Adam bought the ticket he was being unrealistic about his future behavior. 
C) The endowment effect explains Adam's actions.People like Adam seem to value things that they have more than the things they do not have. 
D) Adam's income probably increased between the time he bought the ticket and the day of the play's performance.

Question 5

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.

Accepted Answer

A) a normal good;very small 
B) an inferior good;very small 
C) a normal good;very large 
D) an inferior good;very large 
A) a normal good;very small 
B) an inferior good;very small 
C) a normal good;very large 
D) an inferior good;very large

Question 6

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.

Question 7

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 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

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 10

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

Accepted Answer

A) rational decision to ignore these sunk costs. 
B) poor decision since he had already invested his time and money on his medical career. 
C) poor decision since doctors are in greater demand than bloggers. 
D) hasty decision by not waiting to recoup his financial investment before giving up his medical career. 
A) rational decision to ignore these sunk costs. 
B) poor decision since he had already invested his time and money on his medical career. 
C) poor decision since doctors are in greater demand than bloggers. 
D) hasty decision by not waiting to recoup his financial investment before giving up his medical career.

Question 11

A good is path dependent when

Accepted Answer

A) consumers get utility from consuming goods that others are consuming,such as restaurants. 
B) the first technology that was adopted has an advantage over a better technology that came later. 
C) people who move location follow the path of people who moved before them. 
D) it can only be used in one way. 
A) consumers get utility from consuming goods that others are consuming,such as restaurants. 
B) the first technology that was adopted has an advantage over a better technology that came later. 
C) people who move location follow the path of people who moved before them. 
D) it can only be used in one way.

Question 12

A sunk cost is

Accepted Answer

A) another term that means opportunity cost. 
B) a term used to describe the cost of capital that the owners of a firm sink into their business. 
C) the highest valued alternative that must be given up to engage in an activity. 
D) a cost that has already been paid and cannot be recovered. 
A) another term that means opportunity cost. 
B) a term used to describe the cost of capital that the owners of a firm sink into their business. 
C) the highest valued alternative that must be given up to engage in an activity. 
D) a cost that has already been paid and cannot be recovered.

Question 13

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Accepted Answer

A) True 
 B)False

Question 14

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 fig

Question 15

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Pita Wraps }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Bubble Tea }
\end{array} & \text { Total Utility } \
\hline 1 & 60 & 1 & 40 \
\hline 2 & 102 & 2 & 70 \
\hline 3 & 132 & 3 & 91 \
\hline 4 & 144 & 4 & 106 \
\hline 5 & 144 & 5 & 112 \
\hline 6 & 138 & 6 & 115 \
\hline 7 & 128 & 7 & 115 \
\hline
\end{array}$$ 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.If Keegan can drink all the bubble tea he wants for free,how many glasses will he consume?

Accepted Answer

A) 4 glasses 
B) 5 glasses 
C) 6 glasses 
D) 7 glasses 
A) 4 glasses 
B) 5 glasses 
C) 6 glasses 
D) 7 glasses

Question 16

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

Accepted Answer

A) remains constant. 
B) increase also. 
C) decrease. 
D) be negative. 
A) remains constant. 
B) increase also. 
C) decrease. 
D) be negative.

Question 17

Which of the following statements about utility and preferences is false?

Accepted Answer

A) If Sidra prefers tea to coffee and coffee to hot chocolate,then she must prefer tea to hot chocolate. 
B) Preferences can be ranked. 
C) If two individuals,Ingrid and Inez,each consume the same bundle of goods,then both Inez and Ingrid must receive the same utility from the bundle. 
D) Utility cannot be compared across consumers. 
A) If Sidra prefers tea to coffee and coffee to hot chocolate,then she must prefer tea to hot chocolate. 
B) Preferences can be ranked. 
C) If two individuals,Ingrid and Inez,each consume the same bundle of goods,then both Inez and Ingrid must receive the same utility from the bundle. 
D) Utility cannot be compared across consumers.

Question 18

If preferences are transitive,indifference curves

Accepted Answer

A) intersect at the equilibrium consumption bundle. 
B) intersect at the optimum consumption bundle. 
C) intersect where the marginal rate of substitution for each indifference curve is equal. 
D) do not intersect. 
A) intersect at the equilibrium consumption bundle. 
B) intersect at the optimum consumption bundle. 
C) intersect where the marginal rate of substitution for each indifference curve is equal. 
D) do not intersect.

Question 19

Suppose your marginal utility from consuming the 3rd slice of cake is zero,then your total utility from consuming cake is

Accepted Answer

A) maximized. 
B) decreasing. 
C) negative. 
D) increasing. 
A) maximized. 
B) decreasing. 
C) negative. 
D) increasing.

Question 20

Table 10-5
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline & \text { Italian Sub } & \text { Italian Sub } & \text { Taco } & \text { Taco } & \text { Taco } \
\hline \text { Quantity } & \boldsymbol { M U } & \boldsymbol { M U } /\mathbf { \$ } \mathbf { 4 } & \boldsymbol { M } \boldsymbol { U } & \boldsymbol { M U / \mathbf {\$ 2 } } & \boldsymbol { M U / \$ 1 } \
\hline 1 & 40 & 10 & 30 & 15 & 30 \
\hline 2 & 32 & 8 & 24 & 12 & 24 \
\hline 3 & 20 & 5 & 16 & 8 & 16 \
\hline 4 & 12 & 3 & 12 & 6 & 12 \
\hline 5 & 6 & 1.5 & 8 & 4 & 8 \
\hline 6 & 2 & 0.5 & 4 & 2 & 4 \
\hline
\end{array}$$
-Refer to Table 10-5,which lists the values of Harry Taber's marginal utility and marginal utility per dollar for Italian submarine (sub)sandwiches and tacos.Assume that the price of a sub sandwich is $4 and the price of a taco is $2.When Harry's income is $14,he buys two Italian sub sandwiches and three tacos.The last column lists the values of the marginal utility per dollar for tacos when the price of a taco decreases to $1.Complete this statement: As a result of the change in price

Accepted Answer

A) Harry's purchasing power has increased.He will reduce his consumption of tacos so he can buy one more sub.This is an example of the substitution effect of a price change. 
B) Harry's purchasing power has increased.If tacos are a normal good for Harry he will buy fewer tacos.This is an example of the income effect of a price change. 
C) Harry's purchasing power has increased.If tacos are a normal good for Harry he will buy more tacos.This is an example of the income effect of a price change. 
D) Harry's purchasing power has increased.Harry buys fewer tacos.This is an example of the substitution effect of a price change 
A) Harry's purchasing power has increased.He will reduce his consumption of tacos so he can buy one more sub.This is an example of the substitution effect of a price change. 
B) Harry's purchasing power has increased.If tacos are a normal good for Harry he will buy fewer tacos.This is an example of the income effect of a price change. 
C) Harry's purchasing power has increased.If tacos are a normal good for Harry he will buy more tacos.This is an example of the income effect of a price change. 
D) Harry's purchasing power has increased.Harry buys fewer tacos.This is an example of the substitution effect of a price change

Exam 10: Consumer Choice and Behavioral Economics

The highest-valued alternative that must be given up to engage in an activity is the definition of

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

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?

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be ________ and make up a ________ portion of a consumer's budget.

The slope of an indifference curve

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?

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

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?

A good is path dependent when

A sunk cost is

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

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

Which of the following statements about utility and preferences is false?

If preferences are transitive,indifference curves

Suppose your marginal utility from consuming the 3rd slice of cake is zero,then your total utility from consuming cake is

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

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Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good,with an income effect larger than its substitution effect,a good must be and make up a portion of a consumer's budget.