Exam 7: Consumer Choice and Elasticity

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table. Quantity Marginal Quantity Marginal of Total Marginal Utility per of Green Total Marginal Utility per Pineapples Utility Utility Dollar Tea Utility Utility Dollar 1 32 1 28 2 52 2 46 3 64 3 54 4 68 4 60 5 70 5 64 6 71 6 66 7 71 7 67 a.Complete the table by filling in the blank spaces. b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so,explain why.If not,what combination should he buy and why?

Which of the following is not a determinant of a good's price elasticity of demand?

Figure 7-6 -Refer to Figure 7-6.The inelastic segment of the demand curve

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?

The larger the share of a good in a consumer's budget,holding everything else constant,the

Figure 7-3 -Refer to Figure 7-3.The demand curve on which elasticity changes at every point is given in

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

Article Summary Based on resale prices for tickets for the 2013 Super Bowl in New Orleans, face-value prices for the most expensive tickets to the 2014 game are expected to more than double, with significant price increases for lesser-valued tickets as well. Evidence indicates that sports teams are more interested in maximizing attendance instead of ticket revenue, since greater attendance means more spending on items such as parking and concessions. Higher ticket prices in secondary markets seem to verify that teams are charging less than they could be if their goal was to maximize ticket revenue. -Refer to the Article Summary.How would sports teams know if they were operating on the elastic portion of the demand curve for tickets?

Suppose Barry is maximizing his utility from consuming used paperback novels and audio books.The price of a used novel = $4 and the price of an audio book = $8.If the marginal utility of the last novel was 32 units of utility (utils)what was the marginal utility of the last audio book purchased?

Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: "Imagine that you have decided to see a play and paid the admission price of $10 per ticket.As you enter the theater you discover that you have lost the ticket.The seat was not marked and the ticket cannot be recovered.Would you pay $10 for another ticket?" Scenario B: "Imagine that you have decided to see a play where admission is $10 per ticket.As you enter the theater you discover that you have lost a $10 bill.Would you still pay $10 for a ticket for the play?" As long as additional tickets are available,there's no meaningful difference between losing $10 in cash before buying a ticket,and losing the $10 ticket after buying it.In both cases,you are out $10.Yet,far more subjects (88 percent)in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A,only 46 percent of the subjects say they would be willing to spend another $10 to see the play. Which of the following is the best explanation for the results of the experiment?

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?

Giffen goods

Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine.Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude.He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs.Petty could charge more,but he doesn't see the point.He has stated time and time again he still makes millions when he's on the road,regardless of his ticket prices.He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers")concerts that are less than market clearing prices. Source: Anthony Kuzminski,"Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/

The restriction that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices,even for goods they buy regularly.

Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information,what can you conclude about his price elasticity of demand for protein powder?

Suppose the demand for milk is relatively inelastic.What happens to sales revenue if the government imposes a price floor above the free market equilibrium price in the market for milk?

During its run on Broadway,the play The Producers regularly sold out all available tickets at the St.James Theater.The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so.The best explanation for this decision is

All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making.Which economist did not receive a Nobel Prize for this work?

If the absolute value of the price elasticity of demand for gasoline is 0.5,then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.