Question 1

All but one of the following people were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making.Which person did not receive a Nobel Prize for this work?

Accepted Answer

A)  Vernon Smith 
B)  Alan Krueger 
C)  Daniel Kahneman 
D)  Maurice Allais

Question 2

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

Accepted Answer

A)  network externalities 
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 3

When demand is elastic,a fall in price causes total revenue to rise because

Accepted Answer

A)  when price falls, quantity sold increases so total revenue automatically rises. 
B)  the increase in quantity sold is large enough to offset the lower price. 
C)  the percentage increase in quantity demanded is less than the percentage fall in price. 
D)  the demand curve shifts.

Question 4

During its run on Broadway,the play The Producers regularly sold out all available tickets at the St.James Theater.The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so.The best explanation for this decision is

Accepted Answer

A)  theater owners are unaware of the elasticity of demand for Broadway shows. 
B)  theater owners do not want to raise their prices on weekends, when demand is high, and then have to lower prices during the week, when demand is lower. 
C)  firms sometimes give up profits in the short run to keep their customers happy and increase their profits in the long run. 
D)  theater owners are not motivated to maximize their profits.

Question 5

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 second candy bar is

Accepted Answer

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

Question 6

Along a downward-sloping linear demand curve

Accepted Answer

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 7

If the price elasticity of demand for insulin is equal to zero then the demand curve for insulin is

Accepted Answer

A)  horizontal. 
B)  downward sloping. 
C)  curvilinear. 
D)  vertical.

Question 8

If the demand for cell phone service is inelastic,then

Accepted Answer

A)  the percentage change in quantity demanded is greater than the percentage change in price (in absolute value). 
B)  the percentage change in quantity demanded is equal to the percentage change in price. 
C)  the quantity demanded does not change in response to changes in price. 
D)  the percentage change in quantity demanded is less than the percentage change in price (in absolute value).

Question 9

Suppose that at a price of $55,100 units were sold while at a price of $33,153 units were sold.Without calculating the price elasticity value,can you determine whether demand is elastic,unit elastic,or inelastic? Explain your answer.

Accepted Answer

The answer of Suppose that at a price of $55,100...

Question 10

The average price of gasoline in your neighborhood is $2.15 per gallon.Your neighbor,Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $2.06 per gallon However,she cautions you that there are usually long lines at that station.Is her suggestion beneficial to you?

Accepted Answer

A)  Yes, since gasoline is a necessity for car owners, the total cost savings would be relatively substantial. 
B)  No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station. 
C)  Yes, the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. 
D)  No, my friend is misled; clearly, the lower-priced gasoline must be of inferior quality and could damage vehicles.

Question 11

You wish to buy only one CD.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)Drake's latest CD for $15 which gives you 75 units of utility,or (b)Bob Dylan's "Shadows in the Night" for $10 that gives you 100 units of utility?

Accepted Answer

The answer of You wish to buy only one CD.Use...

Question 12

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

Accepted Answer

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

Question 13

If demand is perfectly inelastic,the absolute value of the price elasticity of demand is

Accepted Answer

A)  zero. 
B)  less than one. 
C)  more than one. 
D)  equal to the absolute value of the slope of the demand curve.

Question 14

If the percentage change in the quantity of teapots demanded is greater than the percentage change in the price of teapots,then

Accepted Answer

A)  the price elasticity of demand for teapots is greater than 1 in absolute value. 
B)  the demand for teapots is unit elastic. 
C)  the price elasticity of demand for teapots is equal to zero. 
D)  the price elasticity of demand for teapots is less than 1 in absolute value.

Question 15

Figure 7-3
  Bettye Babylon does not charge admission to her arboreal estate, the Hanging Gardens. Due to space limitations, Bettye only allows 200 visitors per day at her estate. The figure represents the supply and demand for admission to the Hanging Gardens.
-Refer to Figure 7-3.The economically efficient price to charge for admission to the Hanging Gardens is

Accepted Answer

A)  $0. 
B)  $10. 
C)  between $10 and $25. 
D)  $25.

Question 16

When demand is unit elastic,a change in price causes total revenue to stay the same because

Accepted Answer

A)  the percentage change in quantity demanded exactly offsets the percentage change in price. 
B)  buyers are buying the same quantity. 
C)  total revenue never changes with price changes. 
D)  the change in profit is offset by the change in production cost.

Question 17

If demand is perfectly elastic,the absolute value of the price elasticity coefficient is

Accepted Answer

A)  infinity. 
B)  zero. 
C)  one. 
D)  equal to the absolute value of the slope of the demand curve.

Question 18

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 19

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair,even if they are worse off as a result.How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Accepted Answer

The answer of Studies on consumer behavior have found that...

Question 20

Explain the endowment effect.

Accepted Answer

The answer of Explain the endowment effect....

Exam 7: Consumer Choice and Elasticity