Deck 16: Behavioral Economics and Strategy

Question 1

_____ is the study of how economic decisions are impacted by psychological factors beyond rational economic self-interest.

A) Microeconomics
B) Macroeconomics
C) Behavioral economics
D) Managerial economics

Answer 1

C

Question 2

_____ is built on the principle that decisions are reached on the basis of rational economic self-interest.

A) Economics
B) Finance
C) Psychology
D) Marketing

Answer 2

A

Question 3

_____ involves examining a complex mixture of economic and psychological factors to explain human behavior.

A) Economics
B) Finance
C) Psychology
D) Marketing

Answer 3

C

Question 4

Behavior economics assumes that:

A) organizations always act based on rational decision making.
B) complex mathematical calculations are needed.
C) people do not always make rational decisions.
D) macroeconomics is more important than microeconomics.

Question 5

_____ occurs when neither player can improve his or her outcome through a unilateral change in strategy.

A) A simulation solution
B) A Nash equilibrium
C) A qualitative framework
D) An assumption model

Question 6

The _____ game illustrates that people behave economically irrationally in rejecting monetary splits where the second player can decline the split.

A) simulation
B) dictatorship
C) ultimatum
D) assumption

Question 7

In the _____ game, a variation of the ultimatum game, the decision of the first player is binding.

A) simulation
B) dictatorship
C) equilibrium
D) assumption

Question 8

In the ultimatum game, the second player should _____ to maximize his or her payoff according to the traditional economic rational self-interest concept.

A) reject any monetary split
B) reject any monetary split less than 50/50
C) accept any monetary split greater than 50/50
D) accept any monetary split

Question 9

Real-world outcomes of the ultimatum game indicate that the first player often offers _____ split and the second player _____ any monetary splits less than 50%.

A) a fair; accepts
B) an unfair; rejects
C) a fair; rejects
D) an unfair; accepts

Question 10

Real-world outcomes of the ultimatum game indicate that people often care about:

A) maximizing payoffs.
B) fairness.
C) self-interest.
D) themselves only.

Question 11

Optimal economic decisions often require thinking about the _____ rather than focusing on the:

A) long term; short term.
B) short term; long term.
C) present; future.
D) past; present.

Question 12

In response to _____, the government has policies designed to encourage certain behaviors, such as offering tax breaks to those who save for retirement.

A) short-term rationalities
B) short-term behavior temptations
C) long-term rationalities
D) long-term behavior temptations

Question 13

_____ is the idea that the way in which a decision is presented to customers often affects their behavior.

A) The halo effect
B) Behavior temptation
C) Framing
D) The anchoring effect

Question 14

_____ is the concept of framing economic decisions on the basis of irrelevant information.

A) The halo effect
B) Behavior temptation
C) Odd pricing
D) The anchoring effect

Question 15

A bakery offers cupcakes for $4.99, brownies for $3.99, and cookies for $2.99. The bakery is relying on the framing practice of:

A) confirmation bias.
B) the halo effect.
C) odd pricing.
D) the anchoring effect.

Question 16

Juanita is considering purchasing a dress she just tried on but does not want to pay more than $75. The price tag says that the dress was originally priced at $150 but is now on sale for $100. Juanita buys the dress thinking that she got a great deal even though the price was more than she originally wanted to pay. This is an example of:

A) left digit bias.
B) the halo effect.
C) odd pricing.
D) anchoring.

Question 17

An example of _____ occurs when a business introduces an upscale model of an existing product and experiences an increase in sales of the regular product to customers who believe it to be a bargain.

A) left digit bias
B) the halo effect
C) odd pricing
D) anchoring

Question 18

_____ is a strategy whereby businesses reduce the price of a popular item to attract customers who will likely purchase other goods.

A) Confirmation bias
B) Leader pricing
C) Odd pricing
D) Anchoring

Question 19

_____ is a consumer preference to maintain the current situation.

A) Confirmation bias
B) Leader pricing
C) Status quo bias
D) Anchoring

Question 20

_____ occurs when consumers are offered too many choices, leading them to be less likely to change their minds or make any purchase at all.

A) Confirmation bias
B) The paradox of choice
C) The halo effect
D) Anchoring

Question 21

When Jamal offers only three main entrees for his new restaurant rather than the 10 that his competition offers, he is hoping to avoid the _____ that is faced by many consumers.

A) confirmation bias
B) paradox of choice
C) status quo bias
D) anchoring

Question 22

Miriam enrolled in a gym membership last year. In recent months, she has not used the gym much, yet she continues to pay her monthly membership fee. This is an example of:

A) confirmation bias.
B) paradox of choice.
C) status quo bias.
D) anchoring.

Question 23

In game theory, the _____ is often at an advantage in sequential moves.

A) largest firm
B) first person to decide
C) price leader
D) incumbent

Question 24

The _____ advantage occurs when the initial person to act has a strategic advantage in a game.

A) leader
B) decisions
C) first-mover
D) incumbent

Question 25

If a firm attempts to dominate a market, a second firm must then decide how to respond, given that the initial firm has already produced a large quantity. This is an example of a _____ advantage on the part of the initial firm.

A) leader
B) decisions
C) first-mover
D) incumbent

Question 26

First-mover advantage applies only in _____ games.

A) simultaneous
B) sequential
C) zero sum
D) Nash equilibrium

Question 27

(Figure: Sequential Move Game 0) In the figure, _____ has a first-mover advantage, and her highest payoff is _____.

A) Becky; $7.60
B) Becky; $8.70
C) Becky; $10.15
D) Renee; $1.35

Question 28

(Figure: Sequential Move Game 0) In the figure, if Becky makes three units, Renee's highest payoff is:

A) $3.90.
B) $4.35.
C) $10.15.
D) $1.35.

Question 29

(Figure: Sequential Move Game 0) In the figure, if Becky makes 4 units, Renee's highest payoff is _____ when she makes:

A) $1.90; one unit.
B) $3.10; two units.
C) $2.90; one unit.
D) $4.35; two units.

Question 30

(Figure: Sequential Move Game 0) In the figure, Becky can expect a payoff of _____ if she makes three units.

A) $3.90
B) $4.35
C) $8.70
D) $11.70

Question 31

(Figure: Sequential Move Game 0) In the figure, if we assume Renee profit maximizes, Becky's highest payoff is _____ with Renee producing:

A) $6.65; two units.
B) $7.60; one unit.
C) $8.70; two units.
D) $10.15; one unit.

Question 32

_____ disadvantage occurs when the initial player to act is in an unfavorable strategic circumstance.

A) Competitive
B) First-mover
C) Strategic
D) Second-mover

Question 33

A _____ may be able to use an alternative version of technological advances that previously were developed.

A) competitive mover
B) first-mover
C) strategic mover
D) second-mover

Question 34

In sequential move games, second-mover advantages include:

A) a strategic advantage for the first-mover.
B) technological leadership.
C) an ability to use alternative versions of technological advances.
D) ownership of resources.

Question 35

In sequential move games, second-mover advantages include:

A) a strategic advantage for the first-mover.
B) technological leadership.
C) the ability to better understand customer needs with new products.
D) ownership of resources.

Question 36

In sequential move games, second-mover advantages include:

A) a strategic advantage for the first-mover.
B) technological leadership.
C) the ownership of resources.
D) the potential to free-ride off first-movers.

Question 37

A disadvantage of locating next to a competitor is that:

A) the first-mover advantage is lost.
B) price competition increases.
C) the differentiation of products is difficult.
D) less advertising is needed.

Question 38

_____ is an economic model that is designed to illustrate the optimal location strategy of businesses.

A) Property rights
B) Rational expectations
C) Competitive differentiation
D) Hotelling's model

Question 39

In Hotelling's location model, there is no _____ advantage and no _____ disadvantage.

A) property rights; location
B) location; first-mover
C) first-mover; first-mover
D) first-mover; property rights

Question 40

Hotelling's location model is useful for explaining:

A) simultaneous games.
B) the clustering of similar types of merchants.
C) game theory.
D) the prisoner's dilemma.

Question 41

_____ is a geographic concentration of similar merchants.

A) Framing
B) Clustering
C) Gaming
D) Anchoring

Question 42

_____ mix is an assortment of products that a business offers its customers.

A) Product
B) Clustering
C) Assortment
D) Marketing

Question 43

The number of product lines that are offered by a firm is its _____ mix.

A) product
B) clustering
C) assortment
D) marketing

Question 44

Elijah owns an art gallery. His product _____ consists of oil paintings, watercolors, and adult coloring books.

A) mix
B) clustering
C) appeal
D) type

Question 45

Product _____ occurs when products are differentiated according to the product attributes.

A) mix
B) clustering
C) space
D) type

Question 46

The concept of product _____ refers to a situation when many competing firms are developing similar products.

A) mix
B) clustering
C) space
D) type

Question 47

_____ market has low entry barriers and is not currently competitive.

A) A monopolistic competition
B) An oligopoly
C) A monopoly
D) A contestable

Question 48

_____ is an action taken by an existing business that discourages rivals from entering the market.

A) Exporting
B) Clustering
C) Strategic entry deterrence
D) Price leadership

Question 49

Anti-competitive actions that are taken by an existing firm to discourage entry into the market are known as:

A) exporting.
B) clustering.
C) strategic entry deterrence.
D) price leadership.

Question 50

In _____ market, the threat of entry generally forces a firm to behave in a competitive manner.

A) a monopolistic competition
B) an oligopoly
C) a monopoly
D) a contestable

Question 51

In _____ market, although entry barriers are low, it is in the firm's best interest to deter entry by other firms.

A) a contestable
B) a perfect competition
C) an oligopoly
D) a monopoly

Question 52

In _____ market, the incumbent firm is encouraged to find a price that is profitable yet low enough to deter entry.

A) a contestable
B) a perfect competition
C) an oligopoly
D) a monopoly

Question 53

In _____ market, the incumbent's profits are often lower in the short run but are worth it in the long run because the firm priced low to deter entry.

A) a contestable
B) a perfect competition
C) an oligopoly
D) a monopoly

Question 54

_____ is a strategic entry deterrence policy of setting price low enough to discourage entry while remaining profitable.

A) Economies of scale
B) Prestige pricing
C) Limit pricing
D) Excess capacity

Question 55

In a contestable market, the incumbent firm may deter entry by another firm by:

A) maximizing profits in the short run.
B) setting price below its own average total cost.
C) having diseconomies of scale.
D) producing excess capacity.

Question 56

In a contestable market, an incumbent firm may not want to deter a rival's entry if the incumbent firm prices so ____ that it would be worse off than if it:

A) low; shut down.
B) high; shut down.
C) low; shared the market.
D) high; shared the market.

Question 57

In a contestable market, an incumbent firm may not wish to deter a rival's entry if the incumbent firm must price so ____ that the firm would be better off sharing the market.

A) efficiently
B) in-
C) low
D) high

Question 58

A cartel sets the _____ price and the _____ quantity.

A) lowest; highest
B) highest; lowest
C) lowest; lowest
D) highest; highest

Question 59

When compared to other industries, an industry with the highest prices and lowest quantity is:

A) a cartel or monopoly.
B) an oligopoly.
C) a duopoly.
D) a monopolistic competition.

Question 60

Prices are lowest and quantity is highest in a _____ industry.

A) cartel
B) monopoly
C) duopoly
D) monopolistic competition

Question 61

In _____, prices are higher than prices that are found in more competitive circumstances or with entry deterrence.

A) perfect competition
B) an entry deterrence industry
C) a duopoly without collusion
D) monopolistic competition

Question 62

In _____, price is usually sufficiently low and/or quantity is sufficiently high to deter potential rivals from entering the market.

A) perfect competition
B) an entry deterrence industry
C) a duopoly without collusion
D) monopolistic competition

Question 63

_____ is a model for evaluating the intensity of competition in an industry.

A) A contestable market
B) Rational expectations
C) Porter's five competitive forces
D) Game theory

Question 64

_____ is a microeconomic force that impacts the profitability of a firm.

A) The exchange rate
B) Expectation
C) The interest rate
D) The intensity of rivalries

Question 65

A microeconomic force that impacts the profitability of a firm is known as:

A) exchange rates.
B) expectations.
C) the threat of new entrants.
D) interest rates.

Question 66

_____ is a microeconomic force that impacts the profitability of a firm.

A) The exchange rate
B) The threat of substitutes
C) The interest rate
D) Expectation

Question 67

A microeconomic force that impacts the profitability of a firm is:

A) the bargaining power of suppliers.
B) expectations.
C) exchange rates.
D) interest rates.

Question 68

_____ is a microeconomic force that impacts the profitability of a firm.

A) The exchange rate
B) Price leadership
C) The interest rate
D) The bargaining power of buyers

Question 69

_____ is a factor that determines the intensity of business rivalry.

A) Product variation
B) Expectation
C) The interest rate
D) Market concentration

Question 70

In general, markets with _____ observe a greater intensity of rivalries.

A) greater advertising
B) higher expectations
C) stronger brand loyalty
D) fewer firms

Question 71

_____ is a factor that impacts the intensity of business rivalry.

A) The exchange rate
B) Price leadership
C) The interest rate
D) The buyer's switching cost

Question 72

Buyer switching costs are increased by higher:

A) product variation.
B) expectations.
C) interest rates.
D) brand loyalty.

Question 73

Businesses often respond to the threat of new entrants with ______ strategy.

A) an advertising
B) an entry deterrence
C) a leadership
D) a management

Question 74

The threat of new entrants is _____ if the barriers to entry are _____.

A) low; high
B) low; nonexistent
C) low; low
D) high; high

Question 75

The threat of new entrants is _____ if the ability for entrants to gain access to distribution is:

A) low; high.
B) high; low.
C) low; low.
D) high; nonexistent.

Question 76

The threat of new entrants is _____ if the switching costs for customers are:

A) low; high.
B) high; prohibitive.
C) low; low.
D) high; high.

Question 77

_____ is a factor that determines the threat of substitutes.

A) The price of related goods
B) The exchange rate
C) Expectation
D) The interest rate

Question 78

When the degree of product differentiation is _____, the threat of substitutes is:

A) low; zero.
B) high; zero.
C) high; high.
D) low; high.

Question 79

When _____, the threat of a substitute good is _____.

A) the price of a substitute good is high; high
B) the degree of production differentiation is low; low
C) a product has network externalities; high
D) the cost is high for a customer to switch products, low

Question 80

The _____ the bargaining power of suppliers, the _____ the industry's profitability.

A) greater; higher
B) greater; lower
C) lower; lower
D) lower; riskier