Question 1

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

Accepted Answer

A) True 
 B)False

Question 2

A consumer's indifference curves can never cross.

Accepted Answer

A) True 
 B)False

Question 3

The absolute value of the slope of the budget constraint is equal to

Accepted Answer

A) the marginal rate of substitution between the two goods in question. 
B) the price of good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of good on the horizontal axis divided by the price of the good on the vertical axis. 
D) the quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis. 
A) the marginal rate of substitution between the two goods in question. 
B) the price of good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of good on the horizontal axis divided by the price of the good on the vertical axis. 
D) the quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis.

Question 4

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

Question 5

If a consumer receives 20 units of utility from consuming two candy bars,and 25 units of utility from consuming three candy bars,the marginal utility of the third candy bar is

Accepted Answer

A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer. 
A) 25 utility units. 
B) 20 utility units. 
C) 5 utility units. 
D) unknown as more information is needed to determine the answer.

Question 6

What is behavioral economics?

Accepted Answer

A) the study of how people make wealth-maximizing decisions 
B) the study of how people behave in the face of scarcity 
C) the study of situations in which people act in ways that are not economically rational 
D) the study of how people make decisions at the margin 
A) the study of how people make wealth-maximizing decisions 
B) the study of how people behave in the face of scarcity 
C) the study of situations in which people act in ways that are not economically rational 
D) the study of how people make decisions at the margin

Question 7

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 raises prices it will lower its profits.

Accepted Answer

A) a only 
B) a and b only 
C) a and c only 
D) a,b,and c 
A) a only 
B) a and b only 
C) a and c only 
D) a,b,and c

Question 8

Assume that you had a ticket for a basketball playoff game that you bought for $50,the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it,how can your decision be explained?

Accepted Answer

A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B) by the endowment effect 
C) by the law of diminishing marginal utility 
D) The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect. 
A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. 
B) by the endowment effect 
C) by the law of diminishing marginal utility 
D) The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect.

Question 9

Consumers maximize total utility within their budget constraint by

Accepted Answer

A) buying the cheapest goods they can find. 
B) buying whatever they like the best. 
C) buying the goods with the largest marginal utility per dollar spent. 
D) spending the same dollar amount for each good. 
A) buying the cheapest goods they can find. 
B) buying whatever they like the best. 
C) buying the goods with the largest marginal utility per dollar spent. 
D) spending the same dollar amount for each good.

Question 10

Which of the following correctly describes the result of a price increase for an inferior good?

Accepted Answer

A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease;the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase;the income effect causes the demand for the good to decrease. 
A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease;the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase;the income effect causes the demand for the good to decrease.

Question 11

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) Chris Hemsworth commands a premium in the movie industry because he is endowed with dashing looks. 
C) Isabella was not willing to part with her "Chris Hemsworth" 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) Chris Hemsworth commands a premium in the movie industry because he is endowed with dashing looks. 
C) Isabella was not willing to part with her "Chris Hemsworth" 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.

Question 12

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of a cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccinos relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility,what is the ratio of the marginal utility of cappuccinos to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls,will Eliza consume more apple turnovers,fewer apple turnovers,or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Accepted Answer

a.Income = $56
b.Price of cappuccino / p

Question 13

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?

Accepted Answer

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

Question 14

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$$ 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,what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

Accepted Answer

A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility,the marginal utility of the last cup of soup consumed,and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases. 
A) Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease. 
B) Her total utility,the marginal utility of the last cup of soup consumed,and the marginal utility of the last sandwich consumed all increase. 
C) Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase. 
D) Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases. 
E) Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 15

Grant has $200 to spend each month on restaurant meals and jazz performances at his
neighborhood jazz club.The price of a typical restaurant meal is $20 and the price of a jazz performance ticket is $10.Grant is maximizing his utility by consuming 6 restaurant meals and attending 8 jazz performances.Suppose Grant still has $200 to spend,but the price of restaurant meal rises to $25,while the price of jazz performance ticket drops to $8.Can it be determined if Grant is better off or worse off than he was before the price change? Use a budget constraint/indifference curve graph to illustrate your answer.

Accepted Answer

Initially,when the price of a typical re

Question 16

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A) Giffen goods;luxury goods 
B) the income effect;the substitution effect 
C) the ultimatum game;the dictator game 
D) network externalities;the endowment effect 
A) Giffen goods;luxury goods 
B) the income effect;the substitution effect 
C) the ultimatum game;the dictator game 
D) network externalities;the endowment effect

Question 17

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 many magazines as CDs. 
D) four times as many 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 many magazines as CDs. 
D) four times as many CDs as magazines.

Question 18

Figure 10-4  
-Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between g and h?

Accepted Answer

A)  $\frac { 1 } { 3 }$ of a cookie. 
B)  $\frac { 1 } { 2 }$ of a cookie. 
C) 2 cookies. 
D) 3 cookies. 
A)  $\frac { 1 } { 3 }$ of a cookie. 
B)  $\frac { 1 } { 2 }$ of a cookie. 
C) 2 cookies. 
D) 3 cookies.

Question 19

If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance,we can conclude that

Accepted Answer

A) the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per dollar spent on Blue Man Group. 
B) Paul's demand for a ticket to see Cirque du Soleil is more elastic than his demand for a ticket to see Blue Man Group. 
C) Paul is not making a rational choice. 
D) the marginal utility per dollar spent on Cirque du Soleil is higher than the marginal utility per dollar spent on Blue Man Group. 
A) the marginal utility per dollar spent on Cirque du Soleil is lower than the marginal utility per dollar spent on Blue Man Group. 
B) Paul's demand for a ticket to see Cirque du Soleil is more elastic than his demand for a ticket to see Blue Man Group. 
C) Paul is not making a rational choice. 
D) the marginal utility per dollar spent on Cirque du Soleil is higher than the marginal utility per dollar spent on Blue Man Group.

Question 20

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?

Accepted Answer

A) network externalities 
B) market failure 
C) diminishing marginal utility 
D) the income effect of a price change 
A) network externalities 
B) market failure 
C) diminishing marginal utility 
D) the income effect of a price change

Exam 10: Consumer Choice and Behavioral Economics

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

A consumer's indifference curves can never cross.

The absolute value of the slope of the budget constraint is equal to

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

If a consumer receives 20 units of utility from consuming two candy bars,and 25 units of utility from consuming three candy bars,the marginal utility of the third candy bar is

What is behavioral economics?

Assume that you had a ticket for a basketball playoff game that you bought for $50,the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it,how can your decision be explained?

Consumers maximize total utility within their budget constraint by

Which of the following correctly describes the result of a price increase for an inferior good?

Which of the following demonstrates the endowment effect?

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?

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

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

Figure 10-4 -Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between g and h?

If Paul decides to buy a $60 ticket to a Cirque du Soleil show rather than a $45 ticket for a Blue Man Group performance,we can conclude that

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?

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

Filters

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.