Question 1

A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices, even for goods they buy regularly.

Accepted Answer

A) no evidence 
B) substantial evidence 
C) little evidence 
D) no reason to believe

Question 2

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs.Which of the following is not a possible consequence of path dependency and switching costs?

Accepted Answer

A) Consumers may get locked into using products with inferior technology. 
B) market failure 
C) diseconomies of scale 
D) Government intervention may be necessary in affected markets in order to improve economic efficiency.

Question 3

Which of the following is not a common mistake made by consumers?

Accepted Answer

A) the failure to take into account the implicit costs of an activity 
B) the failure to ignore sunk costs 
C) being overly optimistic about their future behavior 
D) being overly pessimistic about their future behavior

Question 4

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

Accepted Answer

A) external 
B) implicit 
C) switching 
D) marginal

Question 5

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

Accepted Answer

A) deciding on the basis of sunk costs. 
B) buying something you can't really afford because you expect to save in the future. 
C) ignoring non-monetary opportunity costs. 
D) consuming based on celebrity endorsements.

Question 6

What is an indifference curve?

Accepted Answer

A) It is a curve that shows the total utility and the marginal utility derived from consuming a bundle of goods. 
B) It is a curve that shows the combinations of consumption bundles that give the consumer the same utility. 
C) It is a curve that ranks a consumer's preference for various consumption bundles. 
D) It is a curve that shows the tradeoff a consumer faces among different combinations of consumption bundles.

Question 7

Article Summary
The use of celebrities to endorse products remains a popular way for many companies to attract customers and keep their products relevant to their customers. The article discusses five factors that must be examined by a company when choosing a celebrity to endorse its product:
1. The cost of a superstar versus the value of a rising star
2. Finding a good fit between the celebrity and the image of the brand
3. Choosing someone who will promote the brand
4. Identifying valid metrics to measure success
5. The future appeal of the celebrity
Carefully chosen celebrity endorsements have proven to influence customers and enhance a brand's reputation, but as the list indicates, not all celebrities are the right fit for all products.
Source: David Schwab, " Keeping Up With The Evolving World Of Celebrity Endorsement," Forbes, June 27, 2015.
-Refer to the Article Summary above.Economists refer to an increase in sales due to celebrity endorsements as being the result of

Accepted Answer

A) network externalities. 
B) the endowment effect. 
C) social influence. 
D) the ultimatum game.

Question 8

Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively.The total utility received from consuming 2 cans is

Accepted Answer

A) 20. 
B) 80. 
C) 90. 
D) 180.

Question 9

Figure 10-9
 
-Refer to Figure 10-9.If the consumer has $240 to spend on DVDs and CDs, what is the price of a DVD if the budget constraint is BC₁?

Accepted Answer

A) $10 
B) $20 
C) $24 
D) $40

Question 10

The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in

Accepted Answer

A) a decrease in the demand for macaroni and cheese. 
B) an increase in the quantity of macaroni and cheese demanded. 
C) a decrease in the quantity of macaroni and cheese demanded. 
D) an increase in the demand for macaroni and cheese.

Question 11

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

Accepted Answer

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

Question 12

All consumption bundles along a given indifference curve are equally desirable.

Accepted Answer

A) True 
 B)False

Question 13

If marginal utility of apples is diminishing and is a positive amount, consuming one more apple will cause

Accepted Answer

A) total utility to decrease. 
B) a consumer to get no satisfaction from consuming apples. 
C) a consumer's total utility to increase. 
D) a consumer to go beyond her optimal consumption of apples.

Question 14

Which of the following correctly describes the result of a price increase for an inferior good?

Accepted Answer

A) Both the substitution effect and the income effect cause the consumer to buy less of the good. 
B) The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good. 
C) The substitution effect causes the demand for the good to decrease; the income effect causes the demand for the good to increase. 
D) The substitution effect causes the demand for the good to increase; the income effect causes the demand for the good to decrease.

Question 15

In the utility maximizing model, consumer preferences are assumed to be transitive.What does this mean?

Accepted Answer

A) that consumers prefer more of a good to less 
B) that consumers have the freedom to change their preferences from time to time 
C) that consumers have preferences that are relatively consistent in the time period under consideration 
D) that consumers go through cycles in their consumption behavior

Question 16

A sunk cost is

Accepted Answer

A) another term that means opportunity cost. 
B) a term used to describe the cost of capital that the owners of a firm sink into their business. 
C) the highest valued alternative that must be given up to engage in an activity. 
D) a cost that has already been paid and cannot be recovered.

Question 17

What happens to the absolute value of the marginal rate of substitution as you move down a convex (bowed toward the origin)indifference curve?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It remains constant. 
D) It could increase or decrease.

Question 18

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?

Accepted Answer

The answer of What must be true in terms of...

Question 19

If the marginal utility Ida Mae receives from eating chicken wings is negative then

Accepted Answer

A) her total utility from eating chicken wings has fallen. 
B) her total utility from eating chicken wings is negative as well. 
C) Ida Mae definitely does not like chicken wings. 
D) her total utility has risen, but by less from the last chicken wing than from the next to last chicken wing.

Question 20

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

Accepted Answer

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.

Exam 10: Consumer Choice and Behavioral Economics