Question 1

What is the endowment effect?

Accepted Answer

A)  the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it
B)  the tendency of people to be unwilling to sell something they already own because of its sentimental value
C)  the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price
D)  the sum total of assets that a person has acquired over the years A

Question 2

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Accepted Answer

A)  whether consumers care about fairness when they make decisions.
B)  whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand.
C)  whether consumers understand the difference between implicit costs and explicit costs.
D)  whether consumers understand the rule of equal marginal utility per dollar spent. A

Question 3

Jill Borts believes that the price elasticity of demand for her economics textbook is relatively inelastic.She argues "I was told I had to purchase a book written by Hubbard and O'Brien that is required by my instructor.If I wanted to buy a mystery novel I would have many authors to choose from.Therefore,the demand for mystery novels is more elastic than the demand for my textbook." Is Jill correct?

Accepted Answer

A)  The demand for the textbook is more inelastic, but Jill's reasoning is incorrect.The reason the textbook has an inelastic demand is that it is more expensive than any novel.
B)  She is correct.
C)  She is confused.She should have concluded that the textbook has a more elastic demand than a novel.
D)  She is correct that the textbook has a more inelastic demand, but that is because most students pay for their textbooks with credit or debit cards.Most people pay for novels and other books with cash or by check. B

Question 4

The economic model of consumer behavior predicts that

Accepted Answer

A)  consumers will try to earn as much income as they can over their lifetimes.
B)  consumers will choose to buy the combination of goods and services that make them as well off as possible from those combinations that their budgets allow them to buy.
C)  consumers will try to accumulate as many goods and services as they can before they die.
D)  consumers divide their time between consumption and leisure activities in order to maximize social welfare.

Question 5

Which of the following could explain why the demand for table salt is inelastic?

Accepted Answer

A)  Salt is a luxury good.
B)  Salt is a rare commodity.
C)  Households devote a very small portion of their income to salt purchases.
D)  Salt is a luxury for high income consumers but a necessity for low income consumers.

Question 6

If,when price changes by 35 percent,the quantity demanded changes by 7 percent,then the absolute value of the price elasticity of demand is 5.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

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)  No, without information on her income and the prices of the two goods, we cannot answer the question.

Question 8

The demand for a Giffen good slopes upward.

Accepted Answer

A) True 
 B)False

Question 9

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value).This means that a 20 percent increase in the price of beef,holding every thing else constant,will cause the quantity of beef demanded to

Accepted Answer

A)  decrease by 12 percent.
B)  decrease by 26 percent.
C)  decrease by 32 percent.
D)  decrease by 60 percent.

Question 10

The satisfaction a person receives from consuming goods and services is called

Accepted Answer

A)  contentment.
B)  psychic income.
C)  wealth.
D)  utility.

Question 11

Total utility is maximized in the consumption of two goods by

Accepted Answer

A)  equating the marginal utility for each good consumed.
B)  equating the marginal utility per dollar for each good consumed.
C)  equating the total utility of each good divided by its price.
D)  maximizing expenditure on each good.

Question 12

Rank these three items in terms of the elasticity of the demand for them at any given price,from most elastic to least elastic: hot beverages,coffee and Peet's Coffee.

Accepted Answer

A)  hot beverages, coffee, Peet's Coffee
B)  Peet's Coffee, coffee, hot beverages
C)  coffee, Peet's Coffee, hot beverages
D)  coffee, hot beverages, Peet's Coffee

Question 13

The slope of a demand curve is not used to measure the price elasticity of demand because

Accepted Answer

A)  the slope of a linear demand curve is not constant.
B)  the slope of a line cannot have a negative value.
C)  the measurement of slope is sensitive to the units chosen for price and quantity.
D)  the slope of the demand curve does not tell us how much quantity changes as price changes.

Question 14

If at a price of $10,a vendor sells 5 units of a product and at a price of $8,6 units are sold,then,using the midpoint formula,the demand for this good is inelastic.

Accepted Answer

A) True 
 B)False

Question 15

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.

Accepted Answer

A)  0.17
B)  0.62
C)  1.62
D)  5

Question 16

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week.If the price elasticity of demand is -2.5 and the price changes to $44,how many messenger bags will be sold per week? Use the midpoint formula.

Accepted Answer

The answer of The current price of canvas messenger bags...

Question 17

If,for a given percentage increase in price,quantity demanded falls by a proportionately smaller percentage,then demand is

Accepted Answer

A)  unit-elastic.
B)  perfectly elastic.
C)  relatively inelastic.
D)  relatively elastic.

Question 18

If the market for a product is narrowly defined,then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.

Accepted Answer

A) True 
 B)False

Question 19

Table 7-8
 $\begin{array}{|l|l|}
\hline  & \text { Estimated Price Elasticity }\
& \text { of Demand}\
\hline \text { Coca-Cola } & -3.0 \
\hline \text { All carbonated soft drinks } & -1.5 \
\hline \text { All soft drinks } & -0.8 \
\hline
\end{array}$
-Refer to Table 7-8.Assume that an economist has estimated the price elasticity of demand values in the table above.Use the data in the table to select the correct statement.

Accepted Answer

A)  The demand for Coca-Cola is inelastic.
B)  The elasticity for "All soft drinks" is less than the elasticity for Coca-Cola because Coca-Cola is more of a luxury than a necessity; "All soft drinks" represent goods that are more necessity than luxury.
C)  The difference in elasticity values is explained by the fact that the more narrowly we define a market the more elastic the demand will be.
D)  There are fewer substitutes for "All carbonated soft drinks" than there are for "All soft drinks."

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 7: Consumer Choice and Elasticity

What is the endowment effect?

Economists have used the ultimatum game and the dictator game in experiments designed to determine

The economic model of consumer behavior predicts that

Which of the following could explain why the demand for table salt is inelastic?

If,when price changes by 35 percent,the quantity demanded changes by 7 percent,then the absolute value of the price elasticity of demand is 5.

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?

The demand for a Giffen good slopes upward.

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value) .This means that a 20 percent increase in the price of beef,holding every thing else constant,will cause the quantity of beef demanded to

The satisfaction a person receives from consuming goods and services is called

Total utility is maximized in the consumption of two goods by

Rank these three items in terms of the elasticity of the demand for them at any given price,from most elastic to least elastic: hot beverages,coffee and Peet's Coffee.

The slope of a demand curve is not used to measure the price elasticity of demand because

If at a price of $10,a vendor sells 5 units of a product and at a price of $8,6 units are sold,then,using the midpoint formula,the demand for this good is inelastic.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week.If the price elasticity of demand is -2.5 and the price changes to $44,how many messenger bags will be sold per week? Use the midpoint formula.

If,for a given percentage increase in price,quantity demanded falls by a proportionately smaller percentage,then demand is

If the market for a product is narrowly defined,then there are likely to be many substitutes for the product and the demand for the product is relatively elastic.

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.