Question 1

A significant downside to network externalities is that

Accepted Answer

A)  there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B)  firms may network with unethical suppliers or distributors. 
C)  the costs of using celebrity endorsements may be very high. 
D)  there may be large switching costs to firms changing technologies. 
A)  there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. 
B)  firms may network with unethical suppliers or distributors. 
C)  the costs of using celebrity endorsements may be very high. 
D)  there may be large switching costs to firms changing technologies.

Question 2

Professor Parallax chooses two students in his economics class,Jasmine and Cassandra,to participate in the ultimatum game.He chooses Jasmine to be the allocator and Cassandra to be the recipient.He gives Jasmine $50 and as the allocator,she gets to decide how to split the money with Cassandra.If Cassandra decides to accept the amount allocated to her by Jasmine,both students get to keep the money.If Cassandra decides to reject her allocation,neither student gets to keep the money.How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Accepted Answer

If both students care about fairness,eac

Question 3

The satisfaction a person receives from consuming goods and services is called

Accepted Answer

A)  contentment. 
B)  psychic income. 
C)  wealth. 
D)  utility. 
A)  contentment. 
B)  psychic income. 
C)  wealth. 
D)  utility.

Question 4

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

Accepted Answer

A)  rational decision to ignore these sunk costs. 
B)  poor decision since he had already invested his time and money on his medical career. 
C)  poor decision since doctors are in greater demand than bloggers. 
D)  hasty decision by not waiting to recoup his financial investment before giving up his medical career. 
A)  rational decision to ignore these sunk costs. 
B)  poor decision since he had already invested his time and money on his medical career. 
C)  poor decision since doctors are in greater demand than bloggers. 
D)  hasty decision by not waiting to recoup his financial investment before giving up his medical career.

Question 5

If demand for a product is perfectly inelastic,a change in price will not change total revenue.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B)  In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C)  In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D)  The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B. 
A)  The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. 
B)  In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. 
C)  In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in Scenario B, they do not make the connection between the lost $10 bill and the play. 
D)  The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B.

Question 7

Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic.She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor.If I wanted to buy a mystery novel I would have many authors to choose from.Therefore,the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?

Accepted Answer

A)  The demand for the textbook is more inelastic, but Jill's reasoning is incorrect. The reason the textbook has an inelastic demand is that it is more expensive than any novel. 
B)  She is correct. 
C)  She is confused. She should have concluded that the textbook has a more elastic demand than a novel. 
D)  She is correct that the textbook has a more inelastic demand, but that is because most students pay for their textbooks with credit cards. Most people pay for novels and other books with debit cards. 
A)  The demand for the textbook is more inelastic, but Jill's reasoning is incorrect. The reason the textbook has an inelastic demand is that it is more expensive than any novel. 
B)  She is correct. 
C)  She is confused. She should have concluded that the textbook has a more elastic demand than a novel. 
D)  She is correct that the textbook has a more inelastic demand, but that is because most students pay for their textbooks with credit cards. Most people pay for novels and other books with debit cards.

Question 8

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,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 9

Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Accepted Answer

The $1 charge per bid should be consider

Question 10

Traditionally,economists have considered culture,customs,and religion as

Accepted Answer

A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis. 
A)  very important influences on the choices consumers make. 
B)  relatively unimportant factors in explaining the choices consumers make. 
C)  important influences in explaining consumer choices in command economies but less important in market economies. 
D)  subject to normative economic analysis rather than positive economic analysis.

Question 11

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?

Accepted Answer

A)  It is elastic. 
B)  It is perfectly elastic. 
C)  It is perfectly inelastic. 
D)  The price elasticity coefficient is 1. 
A)  It is elastic. 
B)  It is perfectly elastic. 
C)  It is perfectly inelastic. 
D)  The price elasticity coefficient is 1.

Question 12

Suppose you pre-ordered a non-refundable movie ticket to Avengers: Infinity War.On the day of the movie you decide that you would rather not go to the movie.According to economists,what is the rational thing to do?

Accepted Answer

A)  Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  Your should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility. 
A)  Since you do not want to go to the movie and the cost of the movie ticket is a sunk cost, how much you paid for the ticket should not influence your decision. 
B)  You should not waste resources. Since you have paid for the ticket you should watch the movie. 
C)  Your should go to the movie to minimize your losses. 
D)  You should go to the movie to maximize your utility.

Question 13

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 14

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.

Question 15

Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store,located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store,located about a 20-minute drive away.
Based on standard economic theory,under which scenario would you make the 20-minute trip to the other store?

Accepted Answer

A)  Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 
B)  Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 
C)  in either scenario if I think a $15 savings is worth the 20-minute trip 
D)  in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
E)  C and D are correct answers. 
A)  Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 
B)  Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 
C)  in either scenario if I think a $15 savings is worth the 20-minute trip 
D)  in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
E)  C and D are correct answers.

Question 16

The only Giffen goods that have been identified so far in the real world are luxury goods.

Accepted Answer

A) True 
 B)False

Question 17

All of the following products are likely to have significant network externalities except

Accepted Answer

A)  cat food. 
B)  cell phones. 
C)  popular board games. 
D)  Twitter. 
A)  cat food. 
B)  cell phones. 
C)  popular board games. 
D)  Twitter.

Question 18

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Accepted Answer

A)  rise because there will be a shortage of barley. 
B)  rise because the percentage decrease in quantity sold is less than the percentage increase in price. 
C)  rise because the percentage increase in quantity sold is greater than the percentage increase in price. 
D)  fall because of the decrease in the quantity of barley sold. 
A)  rise because there will be a shortage of barley. 
B)  rise because the percentage decrease in quantity sold is less than the percentage increase in price. 
C)  rise because the percentage increase in quantity sold is greater than the percentage increase in price. 
D)  fall because of the decrease in the quantity of barley sold.

Question 19

The U.S.government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use.Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example,through drug education and voluntary treatment programs for addicts.
a.What will happen to the equilibrium price,quantity,and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine?
b.Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine.As a result of the reduction in supply the price of cocaine increases by 25 percent.If the price elasticity of demand is -0.5,what is likely to happen to the incentive to sell cocaine?
c.Based on your answers,explain why one approach might be preferred over the other.

Accepted Answer

a∙A decrease in demand will lead to a de

Question 20

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

Accepted Answer

A)  Yes, the marginal utility from the last unit of each good is equal. 
B)  No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C)  No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D)  No, without information on her income and the prices of the two goods, we cannot answer the question. 
A)  Yes, the marginal utility from the last unit of each good is equal. 
B)  No, she must buy 1 more chocolate bar to equate her quantities of the two goods. 
C)  No, she must cut back to 3 bags of almonds to equate her quantities of the two goods. 
D)  No, without information on her income and the prices of the two goods, we cannot answer the question.

A significant downside to network externalities is that

The satisfaction a person receives from consuming goods and services is called

If demand for a product is perfectly inelastic,a change in price will not change total revenue.

Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Traditionally,economists have considered culture,customs,and religion as

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 you pre-ordered a non-refundable movie ticket to Avengers: Infinity War.On the day of the movie you decide that you would rather not go to the movie.According to economists,what is the rational thing to do?

Consumers maximize total utility within their budget constraint by

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

All of the following products are likely to have significant network externalities except

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

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

A significant downside to network externalities is that

The satisfaction a person receives from consuming goods and services is called

If demand for a product is perfectly inelastic,a change in price will not change total revenue.

Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Traditionally,economists have considered culture,customs,and religion as

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 you pre-ordered a non-refundable movie ticket to Avengers: Infinity War.On the day of the movie you decide that you would rather not go to the movie.According to economists,what is the rational thing to do?

Consumers maximize total utility within their budget constraint by

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

The only Giffen goods that have been identified so far in the real world are luxury goods.

All of the following products are likely to have significant network externalities except

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

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