Question 1

Marginal utility is

Accepted Answer

A) the change in total utility divided by the price of the last unit of a good or service consumed. 
B) the change in total utility a person receives from consuming an additional unit of a good or service. 
C) the utility from consuming a given quantity of a good or service. 
D) the decrease in total utility from consuming more and more units of a good or service. 
A) the change in total utility divided by the price of the last unit of a good or service consumed. 
B) the change in total utility a person receives from consuming an additional unit of a good or service. 
C) the utility from consuming a given quantity of a good or service. 
D) the decrease in total utility from consuming more and more units of a good or service.

Question 2

Assume that when the price of cantaloupes is $2.50 the demand for cantaloupes is unit-elastic,and that the demand curve for cantaloupes is linear and downward sloping.If firms lower the price of cantaloupes to $2.00 which of the following statements can be made regarding the price elasticity of demand for cantaloupes?

Accepted Answer

A) The demand for cantaloupes at $2.00 must be inelastic. 
B) We cannot determine whether the demand for cantaloupes is elastic or inelastic without knowing what the quantity demanded is at each price. 
C) The demand for cantaloupes at $2.00 must be elastic. 
D) The demand for cantaloupes at $2.00 must be unit-elastic. 
A) The demand for cantaloupes at $2.00 must be inelastic. 
B) We cannot determine whether the demand for cantaloupes is elastic or inelastic without knowing what the quantity demanded is at each price. 
C) The demand for cantaloupes at $2.00 must be elastic. 
D) The demand for cantaloupes at $2.00 must be unit-elastic.

Question 3

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Accepted Answer

A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal. 
A) No.We need to know her preferences for CDs and DVDs. 
B) Yes. 
C) No.We need to know the prices of the CDs and DVDs. 
D) No.If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.

Question 4

Assume that the demand curve for sunblock is linear and downward sloping.Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

Accepted Answer

A) The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock. 
B) The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock. 
C) The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock. 
D) The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic. 
A) The slope and the price elasticity of demand are constant at all points along the demand curve for sunblock. 
B) The slope is constant, but the price elasticity of demand is not constant at all points along the demand curve for sunblock. 
C) The slope is not constant, but the price elasticity of demand is constant at all points along the demand curve for sunblock. 
D) The slope of the demand curve for sunblock is constant and equal to zero; demand is perfectly inelastic.

Question 5

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Accepted Answer

A) both on the characteristics of the product and on how many other people are buying the good. 
B) only on the characteristics of the good. 
C) only on how many other people buy the good. 
D) only on the price of the good. 
A) both on the characteristics of the product and on how many other people are buying the good. 
B) only on the characteristics of the good. 
C) only on how many other people buy the good. 
D) only on the price of the good.

Question 6

Which of the following is a common mistake made by consumers?

Accepted Answer

A) taking into account the implicit costs of an activity 
B) ignoring sunk costs 
C) being overly optimistic about their future behavior 
D) being overly pessimistic about their future behavior 
A) taking into account the implicit costs of an activity 
B) ignoring sunk costs 
C) being overly optimistic about their future behavior 
D) being overly pessimistic about their future behavior

Question 7

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

Accepted Answer

A) deciding on the basis of sunk costs. 
B) buying something you can't really afford because you expect to save in the future. 
C) ignoring non-monetary opportunity costs. 
D) consuming based on celebrity endorsements. 
A) deciding on the basis of sunk costs. 
B) buying something you can't really afford because you expect to save in the future. 
C) ignoring non-monetary opportunity costs. 
D) consuming based on celebrity endorsements.

Question 8

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Accepted Answer

A) Consumers may get locked into using products with inferior technology. 
B) market failure 
C) diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency. 
A) Consumers may get locked into using products with inferior technology. 
B) market failure 
C) diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency.

Question 9

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of 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 cappuccino 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 cappuccino 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 /

Question 10

Table 7-3
 $$\begin{array} { | c | c | c | } 
\hline & \text { Ice Cream Cones } & \text { Lime Fizz Soda } \
\hline \text { Quantity } & \boldsymbol { M U } & \boldsymbol { M U } \
\hline 1 & 30 & 40 \
\hline 2 & 25 & 35 \
\hline 3 & 20 & 26 \
\hline 4 & 15 & 18 \
\hline 5 & 10 & 15 \
\hline 6 & 5 & 7 \
\hline
\end{array}$$
-Refer to Table 7-3.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 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 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 11

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 12

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,then an increase in tolls will result in

Accepted Answer

A) a decrease in total revenue. 
B) a decrease in non-toll road usage. 
C) an increase in total revenue. 
D) an increase in toll road usage. 
A) a decrease in total revenue. 
B) a decrease in non-toll road usage. 
C) an increase in total revenue. 
D) an increase in toll road usage.

Question 13

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach,round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market ....Through October,the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare.
Source: Scott McCartney,"Airlines Try Cutting Business Fares,Find They Don't Lose Revenue," Wall Street Journal,November 22,2002.
What is the absolute value of the price elasticity of demand on this airline route?

Accepted Answer

A) 0 
B) less than 1 
C) greater than 1 
D) approximately 1 
A) 0 
B) less than 1 
C) greater than 1 
D) approximately 1

Question 14

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 15

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?

Accepted Answer

A) 0.003 
B) 0.41 
C) 2.43 
D) 4 
A) 0.003 
B) 0.41 
C) 2.43 
D) 4

Question 16

Table 7-2
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Soup (cups) }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Sandwiches }
\end{array} & \text { Total Utility } \
\hline 1 & 40 & 1 & 45 \
\hline 2 & 60 & 2 & 75 \
\hline 3 & 72 & 3 & 102 \
\hline 4 & 82 & 4 & 120 \
\hline 5 & 88 & 5 & 135 \
\hline 6 & 90 & 6 & 145 \
\hline
\end{array}$$ 
Table 7-2 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 7-2.Holding prices constant,when Keira's income changed from $18 to $23,her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels,what type of goods are soup and sandwiches?

Accepted Answer

A) Soup is an inferior good and sandwiches are a normal good. 
B) Soup is a normal good and sandwiches are an inferior good. 
C) Both soup and sandwiches are normal goods. 
D) Both soup and sandwiches are inferior goods. 
A) Soup is an inferior good and sandwiches are a normal good. 
B) Soup is a normal good and sandwiches are an inferior good. 
C) Both soup and sandwiches are normal goods. 
D) Both soup and sandwiches are inferior goods.

Question 17

Economists use the concept of ________ to measure how one economic variable,such as quantity,responds to a change in another economic variable,such as price.

Accepted Answer

A) slope 
B) efficiency 
C) relativity 
D) elasticity 
A) slope 
B) efficiency 
C) relativity 
D) elasticity

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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 20

Article Summary
The article describes three key ways startup companies can get the most benefit from celebrity endorsements. One way is choosing a celebrity that can bring credibility to the company and then incorporating the celebrity into the company's marketing strategy. Second, get public relations value from the celebrity by offering exclusive interviews, contests, and photos and videos of the celebrity with the product. Finally, make sure to choose a celebrity who will represent the product at all times, giving the product maximum exposure.

-Refer to the Article Summary.Economists refer to an increase in sales due to celebrity endorsements as being the result of

Accepted Answer

A) network externalities. 
B) the endowment effect. 
C) social influence. 
D) the ultimatum game. 
A) network externalities. 
B) the endowment effect. 
C) social influence. 
D) the ultimatum game.

Marginal utility is

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Assume that the demand curve for sunblock is linear and downward sloping.Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Which of the following is a common mistake made by consumers?

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

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

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

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,then an increase in tolls will result in

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?

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?

Economists use the concept of ________ to measure how one economic variable,such as quantity,responds to a change in another economic variable,such as price.

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

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

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters

Exam 7: Consumer Choice and Elasticity

Marginal utility is

Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?

Assume that the demand curve for sunblock is linear and downward sloping.Which of the following statements about the slope of the demand curve for sunblock and the price elasticity of demand for sunblock are true?

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Which of the following is a common mistake made by consumers?

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

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

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

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative,then an increase in tolls will result in

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?

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50,the quantity demanded falls from 800 to 600 reams per day.Using the midpoint formula,what is the price elasticity of demand (in absolute value)over this range?

Economists use the concept of ________ to measure how one economic variable,such as quantity,responds to a change in another economic variable,such as price.

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

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

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Market Efficiency and Market Failure

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust Policy

Monopolistic Competition and Oligopoly

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Aggregate Demand and Aggregate Supply Analysis

Money, banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Comparative Advantage, international Trade, and Exchange Rates

Filters