Exam 7: Consumer Choice and Elasticity

What is behavioral economics?

An article in the Wall Street Journal noted the following: Instead of relying on a full-coach,round-trip unrestricted fare of about $2,000 between Cleveland and Los Angeles ...Continental [Airlines] since June has offered a $716 unrestricted fare in that market ....Through October,the test resulted in about the same revenue that Continental thinks it would have collected with its higher fare. Source: Scott McCartney,"Airlines Try Cutting Business Fares,Find They Don't Lose Revenue," Wall Street Journal,November 22,2002. What is the absolute value of the price elasticity of demand on this airline route?

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Why might network externalities result in products that contain inferior technologies?

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?

Economists assume that the goal of consumers is to

Table 7-4 The publisher of a magazine gives his staff the following information: He tells the staff,"Our costs are currently $150,000 more than our revenues each month.I propose to eliminate this problem by raising the price of the magazine to $3.00 per issue.This will result in our revenue being exactly equal to our cost." -Refer to Table 7-4.Which of the following statements is correct?

Table 7-3 -Refer to Table 7-3.Over what range of prices is the demand inelastic?

Avner is maximizing total utility by buying sports magazines and protein supplements.For him to buy more sports magazines,

Which of the following goods would have the most inelastic demand?

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

If the demand for a life-saving drug was perfectly inelastic and the price doubled,the quantity demanded would

When there are few substitutes available for a good,demand tends to be relatively inelastic.

According to a study of the price elasticities of products sold in supermarkets,the price elasticity of demand for toothpaste is estimated at -0.45.Which of the following could explain why the price elasticity of demand for toothpaste is so low?

The income effect of a price increase for a Giffen good outweighs the substitution effect.

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

If you exhibit the endowment effect as a decision maker,then you are

Utility is

Figure 7-2 -Refer to Figure 7-2.A perfectly elastic demand curve is shown in

Figure 7-2 -Refer to Figure 7-2.A perfectly inelastic demand curve is shown in