Question 1

Why might network externalities result in products that contain inferior technologies?

Accepted Answer

Network externalities can create signifi

Question 2

Table 10-4
 $$\begin{array} { | c | c | c | c | c | } 
\hline & \text { Steak \& Cheese } & \text { Steak \& Cheese } & \text { Grilled Chicken } & \text { Grilled Chicken } \
\hline \text { Quantity } & \boldsymbol { M } \boldsymbol { U } & \boldsymbol { M U} / \boldsymbol { P } & \boldsymbol { M } \boldsymbol { U } & \boldsymbol { M U / P } \
\hline 1 & 40 & 10 & 30 & 15 \
\hline 2 & 32 & 8 & 24 & 12 \
\hline 3 & 20 & 5 & 16 & 8 \
\hline 4 & 12 & 3 & 12 & 6 \
\hline 5 & 6 & 1.5 & 8 & 4 \
\hline 6 & 2 & 0.5 & 4 & 2 \
\hline
\end{array}$$
-Refer to Table 10-4.For steak and cheese sandwiches and grilled chicken sandwiches,the table contains the values of the marginal utility (MU)and marginal utility per dollar (MU/P)for Mabel Jarvis.Mabel has $14 to spend on steak and cheese sandwiches and grilled chicken sandwiches.Which of the following statements is true?

Accepted Answer

A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. 
B) If Mabel was maximizing her utility when spending $14 and then received an additional $4,she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. 
C) Mabel will first buy two steak and cheese sandwiches;then with her remaining $6 she will buy three grilled chicken sandwiches. 
D) To maximize her utility,Mabel will need a total of $36,the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches. 
A) If Mabel maximizes her utility she will buy three steak and cheese sandwiches and two grilled chicken sandwiches. 
B) If Mabel was maximizing her utility when spending $14 and then received an additional $4,she would receive the most marginal utility per dollar if her next purchase was another grilled chicken sandwich. 
C) Mabel will first buy two steak and cheese sandwiches;then with her remaining $6 she will buy three grilled chicken sandwiches. 
D) To maximize her utility,Mabel will need a total of $36,the income needed to buy 6 steak and cheese sandwiches and 6 grilled chicken sandwiches.

Question 3

Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster,but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.

Accepted Answer

The inconsistency comes from Molly's fai

Question 4

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,the marginal utility of each taco Harry consumes increases and

Accepted Answer

A) the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B) the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good,and fewer tacos if they are an inferior good. 
C) the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D) the substitution effect will cause Harry to buy fewer tacos. 
A) the substitution effect of the price change will cause Harry to buy more tacos and fewer subs. 
B) the substitution effect of the price change will cause Harry to buy more tacos if they are a normal good,and fewer tacos if they are an inferior good. 
C) the substitution effect will cause Harry to buy another sub because his purchasing power has increased. 
D) the substitution effect will cause Harry to buy fewer tacos.

Question 5

Figure 10-2 represents the demand for ice cream cones.
-Refer to Figure 10-2.Which of the following statements is true?

Accepted Answer

A) Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream. 
B) Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximizing model. 
A) Points a and b are the utility-maximizing quantities of ice cream cones at two different prices of ice cream. 
B) Points a and b may not necessarily be the utility-maximizing quantities of ice cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. 
C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. 
D) Points a and b are derived independently of the utility-maximizing model.

Question 6

What does the marginal rate of substitution measure?

Accepted Answer

A) It measures the rate at which a consumer must give up one good to purchase another good. 
B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C) It measures the change in utility from consuming one additional unit of a good. 
D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant. 
A) It measures the rate at which a consumer must give up one good to purchase another good. 
B) It measures the rate at which a consumer will substitute one good for another when the price of one good changes. 
C) It measures the change in utility from consuming one additional unit of a good. 
D) It measures the rate at which a consumer is willing to trade off one product for another while keeping utility constant.

Question 7

Economists have noted that businesses of a certain type tend to congregate geographically,attracting workers with skills in those fields.This,in turn,lures more firms seeking employees with those skills.Some examples include commercial banking,software development,and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Accepted Answer

The mechanism at work is a network exter

Question 8

For which of the following products is social influence likely to have the greatest impact?

Accepted Answer

A) toothpaste 
B) restaurants 
C) high-blood pressure medication 
D) school textbook 
A) toothpaste 
B) restaurants 
C) high-blood pressure medication 
D) school textbook

Question 9

In the utility maximizing model,consumer preferences are assumed to be transitive.What does this mean?

Accepted Answer

A) that consumers prefer more of a good to less 
B) that consumers have the freedom to change their preferences from time to time 
C) that consumers have preferences that are relatively consistent in the time period under consideration 
D) that consumers go through cycles in their consumption behavior 
A) that consumers prefer more of a good to less 
B) that consumers have the freedom to change their preferences from time to time 
C) that consumers have preferences that are relatively consistent in the time period under consideration 
D) that consumers go through cycles in their consumption behavior

Question 10

The substitution effect of a price increase causes a decrease in the quantity of an inferior good demanded.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

Accepted Answer

A) the fair trade principle 
B) the ultimatum game 
C) the preferential treatment game 
D) the behavioral experiment 
A) the fair trade principle 
B) the ultimatum game 
C) the preferential treatment game 
D) the behavioral experiment

Question 12

Behavioral economics refers to the study of situations

Accepted Answer

A) where consumers and firms appear to make choices that are appropriate to reach their goals. 
B) where consumers and firms appear to value fairness when they make choices. 
C) where consumers and firms disobey the laws of demand and supply. 
D) where consumers and firms do not appear to be making choices that are economically rational. 
A) where consumers and firms appear to make choices that are appropriate to reach their goals. 
B) where consumers and firms appear to value fairness when they make choices. 
C) where consumers and firms disobey the laws of demand and supply. 
D) where consumers and firms do not appear to be making choices that are economically rational.

Question 13

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?

Accepted Answer

A) They have identical movie preferences. 
B) Hardy enjoys romantic comedies more than Laurel. 
C) Hardy enjoys science fiction movies more than Laurel. 
D) The diagrams do not provide any information about relative preferences. 
A) They have identical movie preferences. 
B) Hardy enjoys romantic comedies more than Laurel. 
C) Hardy enjoys science fiction movies more than Laurel. 
D) The diagrams do not provide any information about relative preferences.

Question 14

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 15

Figure 10-5  
-Refer to Figure 10-5.Suppose the price of pizza increases while the price of hamburger remains constant.Then,the consumer's

Accepted Answer

A) indifference curve becomes more concave away from the origin. 
B) indifference curve becomes straighter. 
C) budget constraint moves inward toward the origin on the pizza axis while the hamburger intercept remains the same. 
D) budget constraint moves outward away from the origin on the pizza axis while the hamburger intercept remains the same. 
A) indifference curve becomes more concave away from the origin. 
B) indifference curve becomes straighter. 
C) budget constraint moves inward toward the origin on the pizza axis while the hamburger intercept remains the same. 
D) budget constraint moves outward away from the origin on the pizza axis while the hamburger intercept remains the same.

Question 16

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

A) True 
 B)False

Question 17

What is marginal utility and what is the law of diminishing marginal utility?

Accepted Answer

Marginal utility is the change in total

Question 18

The income effect due to a price decrease will result in an increase in the quantity demanded for

Accepted Answer

A) a Giffen good. 
B) an inferior good. 
C) a public good. 
D) a normal good. 
A) a Giffen good. 
B) an inferior good. 
C) a public good. 
D) a normal good.

Question 19

A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used for computer keyboards today).What is this phenomenon called?

Accepted Answer

A) network externalities 
B) path dependency 
C) sunk cost 
D) comparative advantage 
A) network externalities 
B) path dependency 
C) sunk cost 
D) comparative advantage

Question 20

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.

Exam 10: Consumer Choice and Behavioral Economics

Why might network externalities result in products that contain inferior technologies?

Figure 10-2 represents the demand for ice cream cones. -Refer to Figure 10-2.Which of the following statements is true?

What does the marginal rate of substitution measure?

For which of the following products is social influence likely to have the greatest impact?

In the utility maximizing model,consumer preferences are assumed to be transitive.What does this mean?

The substitution effect of a price increase causes a decrease in the quantity of an inferior good demanded.

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

Behavioral economics refers to the study of situations

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?

Behavioral economics is the study of situations in which people make rational choices.

Figure 10-5 -Refer to Figure 10-5.Suppose the price of pizza increases while the price of hamburger remains constant.Then,the consumer's

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

What is marginal utility and what is the law of diminishing marginal utility?

The income effect due to a price decrease will result in an increase in the quantity demanded for

A standard which came to the market first,such as the QWERTY letter layout in typewriters,can become entrenched (this layout is still used for computer keyboards today).What is this phenomenon called?

Utility is

Economics: Foundations and Models

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