Question 1

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.

Question 2

The endowment effect suggests that people

Accepted Answer

A) have a strong attachment to their entitlements,regardless of whether they paid to acquire them. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways that distort market prices. 
A) have a strong attachment to their entitlements,regardless of whether they paid to acquire them. 
B) have a strong sense of fairness. 
C) are concerned about the welfare of others. 
D) act in ways that distort market prices.

Question 3

A change in the price of a good has two effects on the quantity consumed.What are these effects?

Accepted Answer

A) the income effect and the substitution effect 
B) the utility effect and the budget effect 
C) the total utility effect and marginal utility effect 
D) the consumption effect and expenditure effect 
A) the income effect and the substitution effect 
B) the utility effect and the budget effect 
C) the total utility effect and marginal utility effect 
D) the consumption effect and expenditure effect

Question 4

Figure 6-4  
-Refer to Figure 6-4.Which of the following statements is true?

Accepted Answer

A) The consumer gets more utility from bundle r than from bundle v. 
B) The consumer gets less utility from bundle w than from bundle v. 
C) Bundles r,s,t and u all cost the same. 
D) Bundles r and w are not affordable. 
A) The consumer gets more utility from bundle r than from bundle v. 
B) The consumer gets less utility from bundle w than from bundle v. 
C) Bundles r,s,t and u all cost the same. 
D) Bundles r and w are not affordable.

Question 5

What is the endowment effect?

Accepted Answer

A) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B) the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C) the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D) the sum total of assets that a person has acquired over the years 
A) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it 
B) the tendency of people to be unwilling to sell something they already own because of its sentimental value 
C) the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price 
D) the sum total of assets that a person has acquired over the years

Question 6

The absolute value of the slope of the budget constraint is equal to

Accepted Answer

A) the marginal rate of substitution between the two goods in question. 
B) the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D) quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis. 
A) the marginal rate of substitution between the two goods in question. 
B) the price of the good on the vertical axis divided by the price of the good on the horizontal axis. 
C) the price of the good on the horizontal axis divided by the price of the good on the vertical axis. 
D) quantity of the good on the vertical axis divided by the quantity of the good on the horizontal axis.

Question 7

Sunk costs

Accepted Answer

A) are costs associated with repairing something you already own. 
B) are important for optimal decision making. 
C) are costs that have already been paid and cannot be recaptured in any significant way. 
D) are costs that firms sink into marketing. 
A) are costs associated with repairing something you already own. 
B) are important for optimal decision making. 
C) are costs that have already been paid and cannot be recaptured in any significant way. 
D) are costs that firms sink into marketing.

Question 8

Giffen goods

Accepted Answer

A) are theoretical and have never been discovered in the real world. 
B) have not existed since prior to the Industrial Revolution. 
C) were proven to exist in the 1890s by Sir Robert Giffen. 
D) were not shown to actually exist until 2006. 
A) are theoretical and have never been discovered in the real world. 
B) have not existed since prior to the Industrial Revolution. 
C) were proven to exist in the 1890s by Sir Robert Giffen. 
D) were not shown to actually exist until 2006.

Question 9

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Accepted Answer

A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples. 
A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples.

Question 10

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

Accepted Answer

A) failing to ignore sunk costs. 
B) being overly optimistic about their future behaviour. 
C) not taking nonmonetary opportunity costs into account. 
D) not making themselves aware of the policy regarding refunds. 
A) failing to ignore sunk costs. 
B) being overly optimistic about their future behaviour. 
C) not taking nonmonetary opportunity costs into account. 
D) not making themselves aware of the policy regarding refunds.

Question 11

Explain the endowment effect.

Accepted Answer

The endowment effect refers to the tende

Question 12

If Callum is consuming his utility maximising bundle and the price of one good rises,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Callum do?

Accepted Answer

A) MU/P has increased,and Callum should buy more of this good. 
B) MU/P has increased,and Callum should buy less of this good. 
C) MU/P has decreased,and Callum should buy more of this good. 
D) MU/P has decreased,and Callum should buy less of this good. 
A) MU/P has increased,and Callum should buy more of this good. 
B) MU/P has increased,and Callum should buy less of this good. 
C) MU/P has decreased,and Callum should buy more of this good. 
D) MU/P has decreased,and Callum should buy less of this good.

Question 13

Vinny consumes tacos and chicken wings.To keep his utility constant,he must consume more tacos if he consumes fewer chicken wings.This means that

Accepted Answer

A) Vinny's indifference curve for tacos and chicken wings must have a negative slope. 
B) the prices Vinny pays for tacos and chicken wings are always the same. 
C) Vinny's marginal utility from each good must be constant along his convex indifference curves for tacos and chicken wings. 
D) Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings. 
A) Vinny's indifference curve for tacos and chicken wings must have a negative slope. 
B) the prices Vinny pays for tacos and chicken wings are always the same. 
C) Vinny's marginal utility from each good must be constant along his convex indifference curves for tacos and chicken wings. 
D) Vinny's marginal rate of substitution must be constant along his indifference curves for tacos and chicken wings.

Question 14

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

Question 15

Table 6-5
  
-Refer to Table 6-5,which lists the values of Harry Taber's marginal utility and marginal utility per dollar for burgers and sushi rolls.Assume that the price of the burgers is $4 and the price of sushi rolls is $2.When Harry's income is $14 he buys two burgers and three sushi rolls.The last column lists the values of the marginal utility per dollar for sushi rolls when the price of sushi rolls decreases to $1.Complete this statement: As a result of the change in price,the marginal utility of each sushi roll Harry consumes increases,and

Accepted Answer

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

Question 16

Figure 6-4  
-Refer to Figure 6-4.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 17

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Accepted Answer

A) True 
 B)False

Question 18

Costs that have already been incurred,and which cannot be recovered,are known as

Accepted Answer

A) short-run fixed costs. 
B) implicit costs. 
C) unavoidable costs. 
D) sunk costs. 
A) short-run fixed costs. 
B) implicit costs. 
C) unavoidable costs. 
D) sunk costs.

Question 19

Suppose Barry is maximising 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?

Accepted Answer

A) 2 utils 
B) 12 utils 
C) 16 utils 
D) 64 utils 
A) 2 utils 
B) 12 utils 
C) 16 utils 
D) 64 utils

Question 20

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

Utility is

The endowment effect suggests that people

A change in the price of a good has two effects on the quantity consumed.What are these effects?

Figure 6-4 -Refer to Figure 6-4.Which of the following statements is true?

What is the endowment effect?

The absolute value of the slope of the budget constraint is equal to

Sunk costs

Giffen goods

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

Explain the endowment effect.

If Callum is consuming his utility maximising bundle and the price of one good rises,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Callum do?

Vinny consumes tacos and chicken wings.To keep his utility constant,he must consume more tacos if he consumes fewer chicken wings.This means that

Figure 6-4 -Refer to Figure 6-4.Suppose the price of pizza increases while the price of hamburger remains constant.Then,the consumer's

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Costs that have already been incurred,and which cannot be recovered,are known as

Suppose Barry is maximising 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?

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

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters

Exam 6: Consumer Choice and Behavioural Economics

Utility is

The endowment effect suggests that people

A change in the price of a good has two effects on the quantity consumed.What are these effects?

Figure 6-4 -Refer to Figure 6-4.Which of the following statements is true?

What is the endowment effect?

The absolute value of the slope of the budget constraint is equal to

Sunk costs

Giffen goods

If marginal utility of apples is diminishing and is a positive amount,consuming one more apple will cause

Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed.The companies do this knowing that most customers do not ask for refunds.This is an example of consumers

Explain the endowment effect.

If Callum is consuming his utility maximising bundle and the price of one good rises,what happens to the marginal utility per dollar spent on this good (MU/P),and what should Callum do?

Vinny consumes tacos and chicken wings.To keep his utility constant,he must consume more tacos if he consumes fewer chicken wings.This means that

Figure 6-4 -Refer to Figure 6-4.Suppose the price of pizza increases while the price of hamburger remains constant.Then,the consumer's

Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Costs that have already been incurred,and which cannot be recovered,are known as

Suppose Barry is maximising 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?

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

Economics: Foundations and Models

Choices and Trade-Offs in the Market

Where Prices Come From: the Interaction of Demand and Supply

Elasticity: the Responsiveness of Demand and Supply

Economic Efficiency, Government Price Setting and Taxes

Technology, Production and Costs

Firms in Perfectly Competitive Markets

Monopoly Markets

Monopolistic Competition

Oligopoly: Firms in Less Competitive Markets

The Markets for Labour and Other Factors of Production

International Trade

Government Intervention in the Market

Externalities, Environmental Policy and Public Goods

The Distribution of Income and Social Policy

Filters