Question 1

Arnold Kim began blogging about Apple products during his fourth year of medical school.Kim's Website,MacRumors.com,became so successful that he decided to give up his medical career and work full time on his Website,despite the nearly $200,000 he had invested in his education.In making his decision,Kim decided to ignore the money and time he spent on his education.Economists would say that Kim made a

Accepted Answer

A) rational decision to ignore these sunk costs. 
B) poor decision since he had already invested his time and money on his medical career. 
C) poor decision since doctors are in greater demand than bloggers. 
D) hasty decision by not waiting to recoup his financial investment before giving up his medical career.

Question 2

Figure 7-1 
-Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q1 to Q0.This change in quantity demanded is due to

Accepted Answer

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 3

In the ultimatum game,allocators usually offer recipients at least a 40 percent share of the money,and recipients almost always reject offers of less than a 10 percent share.Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers?

Accepted Answer

A) Fear of arousing outrage and abhorrence could influence economic decisions. 
B) People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. 
C) Some people are careful not to engage in economic behavior that might offend and alienate others. 
D) Allocators can count on recipients to ignore all considerations except financial benefit.

Question 4

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

Accepted Answer

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 5

The observation that people tend to value something more highly when they own it than when they don't is called the

Accepted Answer

A) wealth effect. 
B) endowment effect. 
C) path dependent effect. 
D) endorsement effect.

Question 6

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

A) Giffen goods;luxury goods 
B) the income effect;the substitution effect 
C) the ultimatum game;the dictator game 
D) network externalities;the endowment effect

Question 7

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 8

If at a price of $50,Ghani sells 20 hand-made leather cell-phone covers but at a price of $60,zero units are sold.Based on this information,the demand for his cell-phone covers is

Accepted Answer

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

Question 9

Table 7-2
  Table 7-2 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 7-2.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?

Accepted Answer

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 10

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Accepted Answer

A) True 
 B)False

Question 11

Jonah lives in a small town where there is only one Mexican restaurant.Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Accepted Answer

A) Demand is likely to be perfectly inelastic. 
B) Demand is likely to be perfectly elastic. 
C) Demand is likely to be relatively elastic. 
D) Demand is likely to be relatively inelastic.

Question 12

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

A) True 
 B)False

Question 13

Professor Parallax chooses two students in his economics class,Jasmine and Cassandra,to participate in the ultimatum game.He chooses Jasmine to be the allocator and Cassandra to be the recipient.He gives Jasmine $50 and as the allocator,she gets to decide how to split the money with Cassandra.If Cassandra decides to accept the amount allocated to her by Jasmine,both students get to keep the money.If Cassandra decides to reject her allocation,neither student gets to keep the money.How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Accepted Answer

The answer of Professor Parallax chooses two students in his...

Question 14

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 15

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 16

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

Accepted Answer

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

Question 17

The average price of gasoline in your neighborhood is $3.53 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 $3.46 per gallon However,she cautions you that there 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 18

If the market for a product is broadly defined,then

Accepted Answer

A) the good has many complements. 
B) there are few substitutes for the product and the demand for the product is relatively inelastic. 
C) there are many substitutes for the product and the demand for the product is relatively elastic. 
D) the expenditure on the good is likely to make up a large share of one's budget.

Question 19

If a consumer always buys goods rationally,then

Accepted Answer

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 20

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

Accepted Answer

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

Exam 7: Consumer Choice and Elasticity

Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

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

The observation that people tend to value something more highly when they own it than when they don't is called the

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.

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

If at a price of $50,Ghani sells 20 hand-made leather cell-phone covers but at a price of $60,zero units are sold.Based on this information,the demand for his cell-phone covers is

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Jonah lives in a small town where there is only one Mexican restaurant.Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Behavioral economics is the study of situations in which people make rational choices.

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.

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

If the market for a product is broadly defined,then

If a consumer always buys goods rationally,then

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

Exam 7: Consumer Choice and Elasticity

Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q1 to Q0.This change in quantity demanded is due to

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

The observation that people tend to value something more highly when they own it than when they don't is called the

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

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

If at a price of $50,Ghani sells 20 hand-made leather cell-phone covers but at a price of $60,zero units are sold.Based on this information,the demand for his cell-phone covers is

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Jonah lives in a small town where there is only one Mexican restaurant.Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?

Behavioral economics is the study of situations in which people make rational choices.

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.

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

If the market for a product is broadly defined,then

If a consumer always buys goods rationally,then

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

Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to

Economists have used and in experiments designed to determine whether consumers care about fairness when they make decisions.