Question 1

A Giffen good could be either a normal good or an inferior good.

Accepted Answer

A) True 
 B)False

Question 2

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found

Accepted Answer

A) there is no convincing evidence that the alternative technologies were superior. 
B) consumers sometimes do become locked into the use of products with inferior technologies. 
C) that in all of these cases network externalities resulted in market failure. 
D) that consumers use products with inferior technologies when their prices are lower than products with superior technologies. 
A) there is no convincing evidence that the alternative technologies were superior. 
B) consumers sometimes do become locked into the use of products with inferior technologies. 
C) that in all of these cases network externalities resulted in market failure. 
D) that consumers use products with inferior technologies when their prices are lower than products with superior technologies.

Question 3

Consider a downward-sloping demand curve.When the price of a normal good decreases,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 4

Lilly Davis has $5 per week to spend on any combination of ice cream and candy.The price of an ice cream cone is $2 and the price of a candy bar is $1.The table below shows Lilly's utility values.Use the table to answer the questions that follow the table.
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Ice Cream } \
\text { Cones }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Utility }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility per } \
\text { Dollar }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { of Candy }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Utility }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility }
\end{array} \
\hline 1 & 20 & & & 1 & 20 & \
\hline 2 & 38 & & & 2 & 38 & \
\hline 3 & 52 & & & 3 & 48 & \
\hline 4 & 62 & & & 4 & 54 & \
\hline
\end{array}$$ a.Complete the table by filling in the blank spaces.
b.Suppose Lilly purchases 2 ice cream cones and 1 candy bar.Is she consuming the optimal consumption bundle? If so,explain why.If not,what combination should she buy and why?

Accepted Answer

a.
 \[\begin{array} { | c | c | c | c |

Question 5

The average price of gasoline in your neighborhood is $2.15 per gallon.Your neighbor,Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $2.06 per gallon However,she cautions you that there are usually long lines at that station.Is her suggestion beneficial to you?

Accepted Answer

A) Yes,since gasoline is a necessity for car owners,the total cost savings would be relatively substantial. 
B) No,if one factors in the non-monetary opportunity costs (driving time and waiting in line),it could prove more costly to go to the lower-priced gasoline station. 
C) Yes,the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. 
D) No,my friend is misled;clearly,the lower-priced gasoline must be of inferior quality and could damage vehicles. 
A) Yes,since gasoline is a necessity for car owners,the total cost savings would be relatively substantial. 
B) No,if one factors in the non-monetary opportunity costs (driving time and waiting in line),it could prove more costly to go to the lower-priced gasoline station. 
C) Yes,the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. 
D) No,my friend is misled;clearly,the lower-priced gasoline must be of inferior quality and could damage vehicles.

Question 6

An economist observes two consumers in a supermarket.One of the consumers buys a case of Coca-Cola and the other buys a case of Pepsi-Cola.Both colas sell for the same price and the ages and incomes of the consumers are also the same.Based on this information,how would the economist explain the consumers' choices?

Accepted Answer

A) One of the consumers made the wrong choice,but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently,the consumers had different tastes. 
A) One of the consumers made the wrong choice,but it is impossible to say which one. 
B) Both consumers should have considered buying other colas that had lower prices. 
C) Both consumers should have purchased less than a case because they would be able to buy more later. 
D) Apparently,the consumers had different tastes.

Question 7

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following describes the substitution effect of a price change?

Accepted Answer

A) The change in demand that results from a change in price,making the good more or less expensive relative to other goods,holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power,holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price,making the good more or less expensive relative to other goods,holding constant the effect of the price change on consumer purchasing power. 
A) The change in demand that results from a change in price,making the good more or less expensive relative to other goods,holding constant the effect of the price change on consumer purchasing power. 
B) The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power,holding everything else constant. 
C) The change in quantity demanded of a good that results from the change in the price of a substitute for the good. 
D) The change in quantity demanded of a good that results from a change in price,making the good more or less expensive relative to other goods,holding constant the effect of the price change on consumer purchasing power.

Question 9

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Burgers }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility }
\end{array} & \begin{array} { c } 
\text { Quantity of } \
\text { Pepsi }
\end{array} & \begin{array} { c } 
\text { Marginal } \
\text { Utility }
\end{array} \
\hline 1 & 20 & 1 & 30 \
\hline 2 & 14 & 2 & 10 \
\hline 3 & 10 & 3 & 7 \
\hline 4 & 3 & 4 & 5 \
\hline 5 & 1 & 5 & 1 \
\hline 6 & - 5 & 6 & 0 \
\hline 7 & - 10 & 7 & - 4 \
\hline
\end{array}$$ Table 10-6 lists Jay's marginal utilities for burgers and Pepsi.Jay has $7 to spend on these two goods.The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 10-6.What is Jay's optimal consumption bundle?

Accepted Answer

A) 1 burger and 2 cans of Pepsi 
B) 2 burgers and 3 cans of Pepsi 
C) 3 burgers and 1 can of Pepsi 
D) 3 burgers and 2 cans of Pepsi 
A) 1 burger and 2 cans of Pepsi 
B) 2 burgers and 3 cans of Pepsi 
C) 3 burgers and 1 can of Pepsi 
D) 3 burgers and 2 cans of Pepsi

Question 10

$$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$$ 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.What is Keira's marginal utility per dollar spent on the third cup of soup?

Accepted Answer

A) 72 units of utility 
B) 36 units of utility 
C) 12 units of utility 
D) 6 units of utility 
A) 72 units of utility 
B) 36 units of utility 
C) 12 units of utility 
D) 6 units of utility

Question 11

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Accepted Answer

A) True 
 B)False

Question 12

Optimal decisions are made

Accepted Answer

A) in the marketplace. 
B) if information about prices and marginal utilities is known. 
C) when marginal utility is minimized. 
D) at the margin. 
A) in the marketplace. 
B) if information about prices and marginal utilities is known. 
C) when marginal utility is minimized. 
D) at the margin.

Question 13

Figure 10-9  
-Refer to Figure 10-9.If the consumer has $240 to spend on DVDs and CDs,what is the price of a CD if the budget constraint is BC2?

Accepted Answer

A) $8 
B) $10 
C) $20 
D) $40 
A) $8 
B) $10 
C) $20 
D) $40

Question 14

Total utility is maximized in the consumption of two goods by

Accepted Answer

A) equating the marginal utility for each good consumed. 
B) equating the marginal utility per dollar for each good consumed. 
C) equating the total utility of each good divided by its price. 
D) maximizing expenditure on each good. 
A) equating the marginal utility for each good consumed. 
B) equating the marginal utility per dollar for each good consumed. 
C) equating the total utility of each good divided by its price. 
D) maximizing expenditure on each good.

Question 15

If the price of lattes,a normal good you enjoy,falls,then

Accepted Answer

A) the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B) both the income and substitution effects lead you to buy more lattes. 
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption,resulting in more lattes purchased. 
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption,resulting in more lattes purchased. 
A) the income and substitution effects offset each other but the price effect leads you to buy more lattes. 
B) both the income and substitution effects lead you to buy more lattes. 
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption,resulting in more lattes purchased. 
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption,resulting in more lattes purchased.

Question 16

You participate in a taste test for a new protein supplement called "Kapow." You are given five consecutive one ounce vials of the supplement and after consuming each vial you are asked to note your reaction.You consume the first vial and your response is: "Hmmm,quite good!" After the second,you say,"Not bad at all." After the third,you note,"It's alright." and after the fourth you wince,"No more,the after-taste is getting to me.I need water." What economic principle does this scenario illustrate? Define the principle.

Accepted Answer

It illustrates the law of diminishing ma

Question 17

Harvey Miller owns a baseball that was hit for a home run by Ted Williams.Harvey,a long-time Boston Red Sox fan,recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it.Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero.This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior?

Accepted Answer

A) the difference between implicit and explicit costs 
B) the scarcity of home run baseballs hit by Ted Williams 
C) the endowment effect 
D) how social influences can affect consumption choices 
A) the difference between implicit and explicit costs 
B) the scarcity of home run baseballs hit by Ted Williams 
C) the endowment effect 
D) how social influences can affect consumption choices

Question 18

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Accepted Answer

1.Consumers may believe that the celebri

Question 19

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 20

Which of the following is explained by the law of diminishing marginal utility?

Accepted Answer

A) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola. 
B) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third pretzel. 
C) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her friend Margie's third pretzel. 
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of Coca-Cola. 
A) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third bottle of Coca-Cola. 
B) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her third pretzel. 
C) The marginal utility of Isabel's second bottle of Coca-Cola is greater than the marginal utility of her friend Margie's third pretzel. 
D) The total utility of one bottle of Coca-Cola is greater than the total utility of two bottles of Coca-Cola.

Exam 10: Consumer Choice and Behavioral Economics

A Giffen good could be either a normal good or an inferior good.

Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies.Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found

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

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

Which of the following describes the substitution effect of a price change?

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Optimal decisions are made

Figure 10-9 -Refer to Figure 10-9.If the consumer has $240 to spend on DVDs and CDs,what is the price of a CD if the budget constraint is BC2?

Total utility is maximized in the consumption of two goods by

If the price of lattes,a normal good you enjoy,falls,then

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Which of the following is explained by the law of diminishing marginal utility?

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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