Question 1

The endowment effect suggests that people

Accepted Answer

A)  have a strong attachment to things they already own, 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 things they already own, 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 2

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 theatre 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 theatre 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 per cent)in Scenario B say they would pay $10 for another ticket and see the play,while in Scenario A only 46 per cent 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 3

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

Accepted Answer

A) True 
 B)False

Question 4

One reason that consumers and businesses might not act rationally is

Accepted Answer

A)  it is difficult to obtain enough information about the elasticities of demand and supply. 
B)  they may not realise their actions are inconsistent with their goals. 
C)  consumer tastes change constantly. 
D)  they do not always value fairness when they make choices. 
A)  it is difficult to obtain enough information about the elasticities of demand and supply. 
B)  they may not realise their actions are inconsistent with their goals. 
C)  consumer tastes change constantly. 
D)  they do not always value fairness when they make choices.

Question 5

If the price of refillable butane lighters was to decrease,then

Accepted Answer

A)  the demand for butane would decrease. 
B)  the demand for butane would increase. 
C)  the quantity of butane demanded would increase. 
D)  the quantity of butane demanded would decrease. 
A)  the demand for butane would decrease. 
B)  the demand for butane would increase. 
C)  the quantity of butane demanded would increase. 
D)  the quantity of butane demanded would decrease.

Question 6

A movement along the demand curve for toothpaste would be caused by

Accepted Answer

A)  a change in the price of toothbrushes. 
B)  a change in consumer income. 
C)  a change in the price of toothpaste. 
D)  a change in population. 
A)  a change in the price of toothbrushes. 
B)  a change in consumer income. 
C)  a change in the price of toothpaste. 
D)  a change in population.

Question 7

The supply curve for watches

Accepted Answer

A)  shows the supply of watches consumers are willing and able to buy at any given price. 
B)  is downward sloping. 
C)  shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase. 
D)  shows the relationship between the price of watches and the quantity of watches supplied. 
A)  shows the supply of watches consumers are willing and able to buy at any given price. 
B)  is downward sloping. 
C)  shows the relationship between the quantity of watches firms are willing and able to supply and the quantity of watches consumers are willing and able to purchase. 
D)  shows the relationship between the price of watches and the quantity of watches supplied.

Question 8

Figure 3-6  
-Refer to Figure 3-6.The figure above represents the market for canvas tote bags.Compare the conditions in the market when the price is $50 and when the price is $35.Which of the following describes how the market differs at these prices?

Accepted Answer

A)  At each price there is a surplus; the surplus is greater at $35 than at $50. 
B)  The difference between quantity supplied and quantity demanded is greater at $50 than at $35. 
C)  At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus. 
D)  At each price the supply of tote bags exceeds the demand for tote bags. 
A)  At each price there is a surplus; the surplus is greater at $35 than at $50. 
B)  The difference between quantity supplied and quantity demanded is greater at $50 than at $35. 
C)  At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus. 
D)  At each price the supply of tote bags exceeds the demand for tote bags.

Question 9

A decrease in the equilibrium price for a product will result

Accepted Answer

A)  when the quantity demanded for the product exceeds the quantity supplied. 
B)  when there is a decrease in supply and a decrease in demand for the product. 
C)  when there is an increase in supply and a decrease in demand for the product. 
D)  when there is a decrease in demand and a decrease in the number of firms producing the product. 
A)  when the quantity demanded for the product exceeds the quantity supplied. 
B)  when there is a decrease in supply and a decrease in demand for the product. 
C)  when there is an increase in supply and a decrease in demand for the product. 
D)  when there is a decrease in demand and a decrease in the number of firms producing the product.

Question 10

What is the difference between a supply schedule and a supply curve?

Accepted Answer

A supply schedule is a table that shows

Question 11

Assume that both the demand curve and the supply curve for MP3 players shift to the right,but the supply curve shifts more than the demand curve.As a result,

Accepted Answer

A)  both the equilibrium price and quantity of MP3 players will decrease. 
B)  the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. 
C)  the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. 
D)  the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease. 
A)  both the equilibrium price and quantity of MP3 players will decrease. 
B)  the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. 
C)  the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. 
D)  the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

Question 12

If the price of peaches,a substitute for plums,decreases,the demand for plums will increase.

Accepted Answer

A) True 
 B)False

Question 13

Elle decreased her consumption of bananas when the price of peanut butter increased.For Elle,peanut butter and bananas are

Accepted Answer

A)  substitutes in consumption. 
B)  both inferior goods. 
C)  complements in consumption. 
D)  both luxury goods. 
A)  substitutes in consumption. 
B)  both inferior goods. 
C)  complements in consumption. 
D)  both luxury goods.

Question 14

Which of the following would shift the supply curve for MP3 players to the left?

Accepted Answer

A)  An increase in the price of an input used to produce MP3 players. 
B)  A decrease in consumer tastes for MP3 players. 
C)  An increase in the number of firms that produce MP3 players. 
D)  An increase in the productivity of the workers who produce MP3 players. 
A)  An increase in the price of an input used to produce MP3 players. 
B)  A decrease in consumer tastes for MP3 players. 
C)  An increase in the number of firms that produce MP3 players. 
D)  An increase in the productivity of the workers who produce MP3 players.

Question 15

If a decrease in income leads to a decrease in the demand for mac and cheese,then mac and cheese is

Accepted Answer

A)  a normal good. 
B)  a neutral good. 
C)  a complement. 
D)  a necessity. 
A)  a normal good. 
B)  a neutral good. 
C)  a complement. 
D)  a necessity.

Question 16

What is the endowment effect?

Accepted Answer

A)  The phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increases efficiency. 
B)  The tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services. 
C)  The tendency for people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. 
D)  The tendency of firms to use celebrities endowed with good looks to promote their products. 
A)  The phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increases efficiency. 
B)  The tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services. 
C)  The tendency for people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. 
D)  The tendency of firms to use celebrities endowed with good looks to promote their products.

Question 17

The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Accepted Answer

A) True 
 B)False

Question 18

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Accepted Answer

The processing companies are taking adva

Question 19

If the price of orchids falls,the substitution effect due to the price change will cause

Accepted Answer

A)  an increase in the demand for orchids. 
B)  an increase in the demand for roses, a substitute for orchids. 
C)  an increase in the quantity demanded of orchids. 
D)  an increase in the quantity supplied of orchids. 
A)  an increase in the demand for orchids. 
B)  an increase in the demand for roses, a substitute for orchids. 
C)  an increase in the quantity demanded of orchids. 
D)  an increase in the quantity supplied of orchids.

Question 20

Figure 3-4  
-Refer to Figure 3-4.At a price of $15,how many units will be sold?

Accepted Answer

A)  300 
B)  400 
C)  600 
D)  700 
A)  300 
B)  400 
C)  600 
D)  700

The endowment effect suggests that people

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

One reason that consumers and businesses might not act rationally is

If the price of refillable butane lighters was to decrease,then

A movement along the demand curve for toothpaste would be caused by

The supply curve for watches

Figure 3-6 -Refer to Figure 3-6.The figure above represents the market for canvas tote bags.Compare the conditions in the market when the price is $50 and when the price is $35.Which of the following describes how the market differs at these prices?

A decrease in the equilibrium price for a product will result

What is the difference between a supply schedule and a supply curve?

Assume that both the demand curve and the supply curve for MP3 players shift to the right,but the supply curve shifts more than the demand curve.As a result,

If the price of peaches,a substitute for plums,decreases,the demand for plums will increase.

Elle decreased her consumption of bananas when the price of peanut butter increased.For Elle,peanut butter and bananas are

Which of the following would shift the supply curve for MP3 players to the left?

If a decrease in income leads to a decrease in the demand for mac and cheese,then mac and cheese is

What is the endowment effect?

The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

If the price of orchids falls,the substitution effect due to the price change will cause

Figure 3-4 -Refer to Figure 3-4.At a price of $15,how many units will be sold?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

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

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Exam 3: Where Prices Come From: the Interaction of Demand and Supply

The endowment effect suggests that people

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

One reason that consumers and businesses might not act rationally is

If the price of refillable butane lighters was to decrease,then

A movement along the demand curve for toothpaste would be caused by

The supply curve for watches

Figure 3-6 -Refer to Figure 3-6.The figure above represents the market for canvas tote bags.Compare the conditions in the market when the price is $50 and when the price is $35.Which of the following describes how the market differs at these prices?

A decrease in the equilibrium price for a product will result

What is the difference between a supply schedule and a supply curve?

Assume that both the demand curve and the supply curve for MP3 players shift to the right,but the supply curve shifts more than the demand curve.As a result,

If the price of peaches,a substitute for plums,decreases,the demand for plums will increase.

Elle decreased her consumption of bananas when the price of peanut butter increased.For Elle,peanut butter and bananas are

Which of the following would shift the supply curve for MP3 players to the left?

If a decrease in income leads to a decrease in the demand for mac and cheese,then mac and cheese is

What is the endowment effect?

The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

If the price of orchids falls,the substitution effect due to the price change will cause

Figure 3-4 -Refer to Figure 3-4.At a price of $15,how many units will be sold?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Market Efficiency and Market Failure

The Economics of Healthcare

Firms,the Stock Market,and Corporate Governance

Consumer Choice and Elasticity

Technology, production, and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

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