Question 1

A budget constraint

Accepted Answer

A) represents the bundles of consumption that make a consumer equally happy. 
B) refers to the limited amount of income available to consumers to spend on goods and services. 
C) reflects the desire by consumers to increase their income. 
D) shows the prices that a consumer chooses to pay for products he consumes. 
A) represents the bundles of consumption that make a consumer equally happy. 
B) refers to the limited amount of income available to consumers to spend on goods and services. 
C) reflects the desire by consumers to increase their income. 
D) shows the prices that a consumer chooses to pay for products he consumes.

Question 2

Which of the following is a common mistake consumers commit when they make decisions?

Accepted Answer

A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behaviour. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much. 
A) They take into account nonmonetary opportunity costs but ignore monetary costs. 
B) They are overly pessimistic about their future behaviour. 
C) They fail to ignore sunk costs. 
D) They sometimes value fairness too much.

Question 3

Assume that Anne has $300 to spend on DVDs and CDs.Her optimal consumption of DVDs and CDs is illustrated by a tangency between a budget line and an indifference curve.Now assume that the price of CDs rises but the price of DVDs falls.How can you show that Anne is made better off by these price changes?

Accepted Answer

A) Show that the price changes shift Anne's budget line outward;the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices;then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs,which give her greater utility than CDs. 
A) Show that the price changes shift Anne's budget line outward;the budget line is tangent to a higher indifference curve. 
B) Show that the price changes move Anne along her budget line to a higher indifference curve. 
C) Show that Anne can afford to buy the optimal combination of DVDs and CDs at their original prices;then show that Anne can now reach a higher indifference curve. 
D) Show that Anne can now afford to buy more DVDs,which give her greater utility than CDs.

Question 4

Behavioural economists examine choices that consumers make that are not economically rational.Economists generally assume that people are rational;that is,they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs.Why do consumers not act rationally when the result is that they make themselves worse off?

Accepted Answer

Most people who do not act rationally do

Question 5

Figure 6-5   Manuri has $300 to spend on Pilates classes and Yoga classes.The price of a group Pilates class is $20 and the price of a group Yoga class is $10.Manuri's optimal bundle is given by 'A' in Figure 6-5.
-Refer to Figure 6-5.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.The income effect of this price change is represented by the movement from

Accepted Answer

A) A to B. 
B) B to C. 
C) D to B 
D) D to C. 
A) A to B. 
B) B to C. 
C) D to B 
D) D to C.

Question 6

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

Accepted Answer

A) True 
 B)False

Question 7

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,the $200 000 he spent on his education

Accepted Answer

A) should be ignored since it represents a sunk cost. 
B) should be considered since it is money he has spent and needs to recoup. 
C) should be ignored only if Kim can earn more than $200 000 by running his website. 
D) should be considered since it is money he could have used to invest in his website. 
A) should be ignored since it represents a sunk cost. 
B) should be considered since it is money he has spent and needs to recoup. 
C) should be ignored only if Kim can earn more than $200 000 by running his website. 
D) should be considered since it is money he could have used to invest in his website.

Question 8

The demand for a Giffen good slopes upward.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the consumer's income increases while the prices of the goods remain constant.Then the

Accepted Answer

A) budget constraint shifts inward parallel to the original budget constraint. 
B) budget constraint shifts outward parallel to the original budget constraint. 
C) indifference curves shift outward away from the origin. 
D) indifference curves become flatter. 
A) budget constraint shifts inward parallel to the original budget constraint. 
B) budget constraint shifts outward parallel to the original budget constraint. 
C) indifference curves shift outward away from the origin. 
D) indifference curves become flatter.

Question 10

All consumption bundles along a given indifference curve are equally desirable.

Accepted Answer

A) True 
 B)False

Question 11

The economic model of consumer behaviour explains how consumers' tastes and preferences are formed.

Accepted Answer

A) True 
 B)False

Question 12

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

Accepted Answer

A) True 
 B)False

Question 13

Figure 6-5   Manuri has $300 to spend on Pilates classes and Yoga classes.The price of a group Pilates class is $20 and the price of a group Yoga class is $10.Manuri's optimal bundle is given by 'A' in Figure 6-5.
-Refer to Figure 6-5.Suppose the price of Pilates sessions rises to $30 while income and the price of Yoga sessions remain unchanged.What is her new optimal bundle?

Accepted Answer

A) still remains at bundle A 
B) bundle B 
C) bundle C 
D) bundle D 
A) still remains at bundle A 
B) bundle B 
C) bundle C 
D) bundle D

Question 14

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs,and if preferences are transitive,

Accepted Answer

A) at times she could be indifferent among the three items. 
B) she must prefer pizza to hot dogs. 
C) she could prefer hamburgers to pizza on some occasions but not hot dogs to pizza. 
D) she could prefer hot dogs to pizza on some occasions but not hamburgers to hot dogs. 
A) at times she could be indifferent among the three items. 
B) she must prefer pizza to hot dogs. 
C) she could prefer hamburgers to pizza on some occasions but not hot dogs to pizza. 
D) she could prefer hot dogs to pizza on some occasions but not hamburgers to hot dogs.

A budget constraint

Which of the following is a common mistake consumers commit when they make decisions?

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

The demand for a Giffen good slopes upward.

Suppose the consumer's income increases while the prices of the goods remain constant.Then the

All consumption bundles along a given indifference curve are equally desirable.

The economic model of consumer behaviour explains how consumers' tastes and preferences are formed.

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs,and if preferences are transitive,

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

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Exam 6: Consumer Choice and Behavioural Economics

A budget constraint

Which of the following is a common mistake consumers commit when they make decisions?

A consumer's utility-maximising combination of goods is given by the bundle that corresponds to the highest point on his indifference curve.

The demand for a Giffen good slopes upward.

Suppose the consumer's income increases while the prices of the goods remain constant.Then the

All consumption bundles along a given indifference curve are equally desirable.

The economic model of consumer behaviour explains how consumers' tastes and preferences are formed.

The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs,and if preferences are transitive,

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