Deck 8: Consumer Choice and Behavioral Economics

Question 1

Marginal utility can be

A)negative.
B)zero.
C)positive.
D)positive, negative or zero.

Answer 1

D

Question 2

Economists assume that the goal of consumers is to

A)do as little work as possible to survive.
B)make themselves as well off as possible.
C)expend all their income.
D)consume as much as possible.

Answer 2

B

Question 3

If your total satisfaction increases when you consume another unit, your marginal utility must be

A)increasing.
B)decreasing.
C)negative.
D)positive.

Answer 3

D

Question 4

An item has utility for a consumer if it

A)is scarce.
B)has a high price.
C)is something everyone else wants.
D)generates enjoyment or satisfaction.

Question 5

Total utility

A)cannot decrease as a person consumes more and more of a good.
B)has a constant rate of increase as a person consumes more and more of a good.
C)is equal to the sum of the marginal utilities of all units consumed.
D)is negative when marginal utility is declining.

Question 6

If a consumer receives 20 units of utility from consuming two donuts, and 25 units of utility from consuming three donuts, the marginal utility of the second donut is

A)25 utility units.
B)20 utility units.
C)5 utility units.
D)unknown as more information is needed to determine the answer.

Question 7

If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must

A)remains constant.
B)increase also.
C)decrease.
D)be negative.

Question 8

If a consumer always buys goods rationally, then

A)the total utilities of the different goods consumed will be equal.
B)the average utilities of the different goods consumed will be equal.
C)the marginal utility per dollar spent on all goods will be equal.
D)the marginal utility of the different goods consumed will be equal.

Question 9

If a consumer receives 22 units of marginal utility for consuming the first can of pop, 20 units from consuming the second, and 15 from the third, the total utility of consuming the three units is

A)57 utility units.
B)35 utility units.
C)15 utility units.
D)unknown as more information is needed to determine the answer.

Question 10

Consumers maximize total utility within their budget constraint by

A)buying the cheapest goods they can find.
B)buying whatever they like the best.
C)buying the goods with the largest marginal utility per dollar spent.
D)spending the same dollar amount for each good.

Question 11

If, when you consume another piece of candy, your marginal utility is zero, then

A)you want more candy.
B)you have maximized your total utility from consuming candy.
C)you have not yet reached the point of diminishing marginal utility.
D)you should consume less candy.

Question 12

As a consumer consumes more and more of a product in a particular time period, eventually marginal utility

A)rises.
B)is constant.
C)declines.
D)fluctuates.

Question 13

Consumers have to make tradeoffs in deciding what to consume because

A)not all goods give them the same amount of satisfaction.
B)the prices of goods vary.
C)they are limited by a budget constraint.
D)there are not enough of all goods produced.

Question 14

Suppose your marginal utility from consuming the 3rd slice of cake is zero, then your total utility from consuming cake is

A)maximized.
B)decreasing.
C)negative.
D)increasing.

Question 15

If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is

A)25 utility units.
B)20 utility units.
C)5 utility units.
D)unknown as more information is needed to determine the answer.

Question 16

The law of diminishing marginal utility states that

A)eventually total utility falls as more of a good is consumed, other things constant.
B)the extra satisfaction from consuming a good decreases as more of a good is consumed, other things constant.
C)the extra satisfaction from consuming a good increases slowly as more of a good is consumed, other things constant.
D)when the extra satisfaction from consuming a good becomes negative, total utility starts falling, other things constant.

Question 17

Utility is

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 18

Marginal utility is the

A)total satisfaction received from consuming a given number of units of a product.
B)average satisfaction received from consuming a product.
C)extra satisfaction received from consuming one more unit of a product.
D)satisfaction achieved when a consumer has had enough of a product.

Question 19

Which of the following is likely to occur as the result of the law of diminishing marginal utility?

A)Petra's utility from her second apple was less than her satisfaction from her first orange.
B)Hudson enjoyed his second slice of pizza more than his first.
C)Sabine's utility from her first granola bar is greater than Rachel's utility from her second granola bar.
D)Wesley enjoyed his second bottle of iced tea less than his first bottle, other things constant.

Question 20

If, as a person consumes more and more of a good, each additional unit adds less satisfaction than the previous unit consumed, we are seeing the workings of

A)the law of demand.
B)the law of supply.
C)the law of increasing marginal opportunity cost.
D)the law of diminishing marginal utility.

Question 21

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

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

Question 22

When the price of summer tank tops falls and you buy more of them because they are relatively less expensive, this is called

A)the substitution effect.
B)the income effect.
C)the deadweight loss effect.
D)the elasticity effect.

Question 23

Carolyn spends her income on popular magazines and games for her smart phone.If the price of a magazine is four times the price of a game and if Carolyn is maximizing her utility, she buys

A)both goods until the marginal utility of the magazine purchased is four times the marginal utility of the last game purchased.
B)both goods until the marginal utility of the last game purchased is four times the marginal utility of the last magazine purchased.
C)four times as much magazines as games.
D)four times as much games as magazines.

Question 24

If the price of lattes, a normal good you enjoy, falls,

A)the income and substitution effects offset each other but the price effect leads you to buy more lattes.
B)both the income and substitution effects lead you to buy more lattes.
C)the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more latte purchased.
D)the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more latte purchased.

Question 25

Table 8.1

Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 8.1 shows his total utility from different quantities of the two items.
Refer to Table 8.1.If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume?

A)4 glasses
B)5 glasses
C)6 glasses
D)7 glasses

Question 26

Consider a downward-sloping demand curve.When the price of an inferior good increases, the income and substitution effects

A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question 27

If the price of muffins, a normal good you enjoy, rises,

A)the income and substitution effects offset each other but the price effect leads you to buy fewer muffins.
B)both the income and substitution effects lead you to buy fewer muffins.
C)the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.
D)the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

Question 28

Consider a downward-sloping demand curve.When the price of an inferior good decreases, the income and substitution effects

A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question 29

The demand curve for canned peas is downward sloping.If the price of canned peas, an inferior good, rises,

A)the income effect which causes you to reduce your canned peas purchases is smaller than the substitution effect which causes you to increase your purchases, resulting in a net increase in quantity demanded.
B)the income effect which causes you to increase your canned peas purchases is smaller than the substitution effect which causes you to reduce your purchases, resulting in a net decrease in quantity demanded.
C)both the income and substitution effects reinforce each other to decrease the quantity demanded.
D)the income and substitution effects offset each other but the price effect of an inferior good leads you to buy more canned peas.

Question 30

If Marlowe obtains 9 units of utility per dollar spent on apples and 6 units of utility per dollar spent on oranges, then Marlowe

A)is maximizing total utility.
B)should buy more apples and fewer oranges.
C)should buy more oranges and fewer apples.
D)should buy fewer oranges and fewer apples.

Question 31

Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because

A)car buyers are irrational.
B)the total utility of less expensive cars is greater than that of luxury cars.
C)the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars.
D)luxury cars cost a lot more than non-luxury cars.

Question 32

Table 8.1

Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 8.1 shows his total utility from different quantities of the two items.
Refer to Table 8.1.What is Keegan's optimal consumption bundle?

A)3 pita wraps and 3 bubble teas
B)3 pita wraps and 4 bubble teas
C)4 pita wraps and 2 bubble teas
D)5 pita wraps and 0 bubble teas

Question 33

Suppose Joe is maximizing total utility within his budget constraint.If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be

A)2,000 units of utility.
B)500 units of utility.
C)100 units of utility.
D)80 units of utility.

Question 34

The substitution effect of an increase in the price of Raisin Bran refers to

A)the decrease in the demand for Raisin Bran when its price rises.
B)the result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Raisin Bran shifts to the left.
C)the fact that the higher price of Raisin Bran lowers consumer's purchasing power, holding money income constant.
D)the fact that the higher price of Raisin Bran relative to its substitutes, such as Cheerios, cause consumers to buy less Raisin Bran.

Question 35

If Valerie purchases ankle socks at $5 and gets 25 units of marginal utility from the last unit, and bandanas at $3 and gets 12 units of marginal utility from the last bandana purchased, she

A)is maximizing total utility and does not want to change their consumption of ankle socks or bandanas.
B)wants to consume more ankle socks and fewer bandanas.
C)wants to consume more of bandanas and fewer ankle socks.
D)wants to consume less of both ankle sock and bandanas.

Question 36

The income effect of an increase in the price of salmon

A)is the change in the demand for salmon when income increases.
B)refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon.
C)refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant.
D)is the change in the demand for other types of fish, say trout, that result from a decrease in purchasing power.

Question 37

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

A)the price of protein supplements. has to fall.
B)the price of sports magazines has to fall.
C)the price of sports magazines has to rise.
D)Since Avner is maximizing his utility, nothing can change the consumption of sports magazines.

Question 38

When the price of audio books, a normal good, falls, causing your purchasing power to rise, you buy more of them due to

A)the substitution effect.
B)the income effect.
C)the deadweight loss effect.
D)the elasticity effect.

Question 39

If Callum is consuming his utility maximizing 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?

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 40

The demand curve for corn is downward sloping.If the price of corn, an inferior good, falls,

A)the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
B)the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
C)both the income and substitution effects reinforce each other to increase the quantity demanded.
D)the income and substitution effects offset each other but the price effect of an inferior good leads you to buy less corn.

Question 41

Table 8.2

Table 8.2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
Refer to Table 8.2.Holding prices constant, when Keira's income changed from $18 to $23, what happens to her total utility and to the marginal utilities of the last cup of soup and the last sandwich purchased?

A)Her total utility increases but the marginal utilities of the last cup of soup and the last sandwich consumed decrease.
B)Her total utility, the marginal utility of the last cup of soup consumed and the marginal utility of the last sandwich consumed, all increase.
C)Her total utility decreases but the marginal utilities of the last cup of soup and the last sandwich consumed increase.
D)Her total utility and the marginal utility of the last cup of soup consumed increase but marginal utility of the last sandwich consumed decreases.
E)Her total utility and the marginal utility of the last sandwich consumed increase but marginal utility of the last cup of soup consumed decreases.

Question 42

What is marginal utility and what is the law of diminishing marginal utility?

Question 43

Figure 8.1

Note: a hoagie is essentially a submarine sandwich.
Refer to Figure 8.1.When the price of hoagies (sandwiches)increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

A)the price and output effects.
B)the income and substitution effects.
C)the fact that marginal willingness to pay falls.
D)the law of diminishing marginal utility.

Question 44

After getting an A on your economics exam, you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility, or (b)the enchiladas for $15 which gives you 195 units of utility?

Question 45

Table 8.2

Table 8.2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
Refer to Table 8.2.Suppose Keira's income increases from $18 to $23 but prices have not changed.What is her utility maximizing bundle now?

A)6 cups of soup and 5 sandwiches
B)4 cups of soup and 5 sandwiches
C)5 cups of soup and 4 sandwiches
D)5 cups of soup and 5 sandwiches

Question 46

If you received negative marginal utility from consuming the 4th slice of pizza, then your total utility from 4 slices of pizza must be less than your total utility from 3 slices of pizza.

Question 47

The substitution effect of a price increase causes a decrease in the quantity demanded of an inferior good.

Question 48

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

Question 49

Consider a downward-sloping demand curve.When the price of a normal good increases, the income and substitution effects

A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question 50

Table 8.2

Table 8.2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
Refer to Table 8.2.What is Keira's marginal utility per dollar spent on the third cup of soup?

A)72 units of utility
B)36 units of utility
C)12 units of utility
D)6 units of utility

Question 51

The income effect of a price increase causes a decrease in the quantity demanded of a normal good.

Question 52

Figure 8.1

Note: a hoagie is essentially a submarine sandwich.
Refer to Figure 8.1.Which of the following statements is true?

A)Quantities Q₀ and Q₁ are the utility-maximizing quantities of hoagies at two different prices of hoagies.
B)Quantities Q₀ and Q₁ may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods.
C)Quantity Q₀ could be a utility-maximizing choice if the price is $5.75, but quantity Q₁ may not be because we have no information on the marginal utility per dollar when price changes.
D)Quantities Q₀ and Q₁ are derived independently of the utility-maximizing model.

Question 53

When diminishing marginal utility sets in, total utility must be negative.

Question 54

Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects

A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question 55

Eliza consumes 12 cappuccinos and 8 apple turnovers per week.The price of cappuccino is $4 each and apple turnovers are $1 each.
a.What is the amount of income allocated to cappuccino and apple turnover consumption?
b.What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c.Explain the meaning of the price ratio you computed.
d.If Eliza maximize utility, what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e.If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Question 56

Adhira buys chocolates and almonds.She has 3 bars of chocolates and 4 bags of almonds.The marginal utility of the third chocolate bar is 18 units of utility and the marginal utility from the fourth bag of almonds is also 18.Is Adhira maximizing her utility?

A)Yes, the marginal utility from the last unit of each good is equal.
B)No, she must buy 1 more chocolate bar to equate her quantities of the two goods.
C)No, she must buy cut back to 3 bags of almonds to equate her quantities of the two goods.
D)Perhaps, without information on her income and the prices of the two goods, we cannot answer the question.

Question 57

Table 8.2

Table 8.2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
Refer to Table 8.2.Holding prices constant, when Keira's income changed from $18 to $23, her utility maximizing bundle changed.Based on your answers to her optimal choices at the two income levels, what type of goods are soup and sandwiches?

A)Soup is an inferior good and sandwiches are a normal good.
B)Soup is a normal good and sandwiches are an inferior good.
C)Both soup and sandwiches are normal goods.
D)Both soup and sandwiches are inferior goods.

Question 58

Table 8.2

Table 8.2 above shows Keira's utility from soup and sandwiches. The price of soup is $2 per cup and the price of a sandwich is $3. Keira has $18 to spend on these two goods.
Refer to Table 8.2.If Keira maximizes her utility, how many units of each good should she buy?

A)1 cup of soup and 5 sandwiches
B)3 cups of soup and 4 sandwiches
C)6 cups of soup and 2 sandwiches
D)4 cups of soup and 3.5 sandwiches

Question 59

Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea.The price of a pineapple is $4 and the price of a bottle of green tea is $2.The table below shows Arnie's utility values.Use the table to answer the questions that follow the table.

a.Complete the table by filling in the blank spaces.
b.Suppose Arnold purchases 4 pineapples and 2 bottles of green tea.Is he consuming the optimal consumption bundle? If so, explain why.If not, what combination should he buy and why?

Question 60

A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.

Question 61

The demand curve for a luxury good is upward-sloping.

Question 62

What is the common feature displayed by the following items?
A)eating in a newly opened "fusion" cuisine restaurant
B)attending a Toronto Maple Leafs game at Air Canada Centre
C)wearing Lucky Brand designer jeans

A)They are all highly inelastic goods.
B)The consumption of these goods takes place privately.
C)The consumption of these goods takes place publicly.
D)They tend to be consumed by better educated people.

Question 63

Along a downward-sloping linear demand curve,

A)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase.
B)the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant.
C)the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases.
D)the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Question 64

The demand curve for a Giffen good is

A)non-linear but downward-sloping.
B)vertical.
C)upward-sloping.
D)non-existent.

Question 65

By hiring Justin Bieber to advertise its electronics Buy Back program, Best Buy is hoping to change its image and reach a new, younger target market.By using celebrities such as Bieber to endorse products, companies are hoping that its customers will respond positively and business will increase.All of the following are reasons why celebrity endorsements may increase sales for advertised products except

A)consumers may believe that celebrities have more information than they do about the advertised product.
B)consumers may feel closer to celebrities if they purchase the products being endorsed.
C)consumers can be sure that a company would not pay a large sum for a celebrity to endorse its product unless the product is the best available in the market.
D)consumers may believe they will appear more fashionable if they purchase products endorsed by certain celebrities.

Question 66

Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Question 67

A network externality occurs when

A)there is production cost savings from being networked with suppliers.
B)there is production cost savings from being networked with buyers.
C)the usefulness of a good is affected by how many others use the good.
D)the usefulness of a good is affected by celebrities who use the good.

Question 68

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

A)both on the characteristics of the product and on how many other people are buying the good.
B)only on the characteristics of the good.
C)only on how many other people buy the good.
D)only on the price of the good.

Question 69

Identify the one statement that does not demonstrate how social effects influence consumer choice.

A)Students in an Economics class are required to purchase a textbook assigned by the professor.
B)There is utility gained from consuming goods or services that others are consuming.
C)Some products that people consume are determined by the social popularity of the products.
D)Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the internet for others to see.

Question 70

The demand curve for an inferior good can never be downward-sloping.

Question 71

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

Question 72

Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget.

A)a normal good; very small
B)an inferior good; very small
C)a normal good; very large
D)an inferior good; very large

Question 73

Which of the following does not explain why consumers buy products that many other consumers are already buying?

A)technology
B)the satisfaction people derive by being viewed as "fashionable"
C)cost-effective way to gather information about a product
D)differences in tastes and preferences

Question 74

What must be true in terms of the income effect, the substitution effect, and the type of good for the good's demand curve to be upward sloping?

Question 75

What is a Giffen good?

Question 76

In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change

A)income and hold everything else constant.
B)tastes and preferences and hold everything else constant.
C)the price of the product and hold everything else constant.
D)the price of a close substitute and hold everything else constant.

Question 77

Firms pay famous individuals to endorse their products because

A)apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product.
B)the firms are irrational and are wasting advertising expenditures.
C)famous people obviously know what are the best goods and services.
D)famous people only consume high quality products.

Question 78

Consider the following factors:
A)culture
B)religion
C)customs
D)prices
E)income
Which of the factors above are likely to influence the choices consumers make?

A)a, d, and e only
B)all the factors except b
C)all the factors except c
D)d and e only
E)all the factors listed

Question 79

A Giffen good could be either a normal good or an inferior good.

Question 80

Giffen goods

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.