Quiz #8

Match the following economic terms with their examples. A common practice at many supermarkets is to show the "total savings" customers received from their purchases at the bottom of the receipt. Such savings include discounts from goods purchased along with savings from "loyalty cards" used. The customers will feel like they saved money and will be more likely to return to the store for future purchases. Bounded Rationality Gambler's Fallacy Anchoring Risk Aversion Equity Framing Endowment Effect

Framing

Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour, $46; and the 39th hour, $48. How many hours should he work each week? He should work 40 hours per week because he can always earn more revenue by working more. He should work 39 hours per week because he would have to lower his price if he wanted to work more than that. He should work 38 hours per week because this is the workload that maximizes his net gain. He should work 36 hours per week because the marginal cost of working rises after this point.

He should work 38 hours per week because this is the workload that maximizes his net gain.

Midori is currently consuming at the point where the marginal utility per dollar spent on ski trips is 20, and the marginal utility per dollar spent on restaurant meals is 15. Which statement is TRUE of this scenario? Midori's total utility is maximized. Midori has chosen the optimal consumption bundle. Midori should purchase fewer ski trips and more restaurant meals. Midori should purchase more ski trips and fewer restaurant meals.

Midori should purchase more ski trips and fewer restaurant meals.

Match each economic term with the correct definition, example or scenario. Each term can be found in the videos OR in your textbook. Investing in the stock market has the potential for high payoffs, but also comes with high risks. In order to make sure that I don't lose all of my savings, I am only going to invest a portion of my money in the stock market. I am going to invest some money in bonds and the rest will go into a high yield savings account. My payoff at the end will be a little bit less, but I am more certain that I will not lose money using this strategy. Compartmentalizing Sunk Cost Fallacy Risk Aversion Bounded Rationality

Risk Aversion

Match the following economic terms with their examples. Most people feel the misery of losing $1,000 about twice as much as they feel the pleasure of gaining an equal amount of money. Bounded Rationality Gambler's Fallacy Anchoring Risk Aversion Equity Framing Endowment Effect

Risk Aversion

See question #9 on Quiz #8 for Marginal Utility problem

See question #9 on Quiz #8 for Marginal Utility problem

Morgan decided to quit her $60,000 per year job as an information technology specialist and illustrate children's books. At the end of the first year of illustrating, she has earned $20,000. Morgan also spent $5,000 for paint and paper. Her economic profit in the first year as an illustrator is: $15,000. -$45,000. -$40,000. $20,000.

-$45,000.

Alonso's total utility from buying 1 paperback book is 8 utils, total utility from buying 2 paperback books is 10 utils, and total utility from buying 3 books is 13. If the price of each book is $6, Alonso's marginal utility per dollar spent on the third book equals: 0.5 utils. 0.6 utils. 1.5 utils. 2 utils.

0.5 utils.

Match the following economic terms with their examples. Sam was looking to buy a new house. His real estate broker suggested that given his preferences, most houses should be around $175,000. However, when he started looking, most houses that met his criteria were listed closer to $225,000 in price. When submitting offers, he used the $175,00 to bench mark how much he was willing to pay because he felt like most of the properties were over priced at $225,000. Bounded Rationality Gambler's Fallacy Anchoring Risk Aversion Equity Framing Endowment Effect

Anchoring

Match each economic term with the correct definition, example or scenario. Each term can be found in the videos OR in your textbook. Information is costly to gather. Sometimes, you make a choice that is "close enough," because gathering enough information to make a perfect choice would take too much time and effort. Compartmentalizing Sunk Cost Fallacy Risk Aversion Bounded Rationality

Bounded Rationality

Match the following economic terms with their examples. You are looking at how many classes you can afford to take next semester. Each class has a different tuition rate. Instead of looking up the tuition and fees for each class that you could possibly take, you instead approximate the average tuition and fees for each class to be $650. Bounded Rationality Gambler's Fallacy Anchoring Risk Aversion Equity Framing Endowment Effect

Bounded Rationality

Match each economic term with the correct definition, example or scenario. Each term can be found in the videos OR in your textbook. Last week I saw a sweater that I really liked, but decided that I should save my money to pay for summer classes instead. However, after my mom slipped me a $20 bill when I went last weekend, I decided that I should go ahead and buy the sweater. Compartmentalizing Sunk Cost Fallacy Risk Aversion Bounded Rationality

Compartmentalizing

Match the following economic terms with their examples. Your parents bought you a ticket to see the Imagine Dragons in concert for your birthday. You love the band and would have been willing to spend $100 on the tickets to go to the concert. A friend hears about the ticket and offers you $150 to buy it from you since the concert has sold out. You tell her no, that $150 is not enough money to convince you to sell the ticket. Bounded Rationality Gambler's Fallacy Anchoring Risk Aversion Equity Framing Endowment Effect

Endowment Effect

All of the following statements regarding "either-or" decision making are true EXCEPT: It is a decision where you must choose between two activities. The best outcome involves choosing the activity with the positive economic profit. It takes into account opportunity costs. It is a decision that takes into account only explicit costs.

It is a decision that takes into account only explicit costs.

Match each economic term with the correct definition, example or scenario. Each term can be found in the videos OR in your textbook. I spent alot of money on these tickets! It doesn't matter that the game is a blow-out and incredibly boring. I am going to stick around until the end. Compartmentalizing Sunk Cost Fallacy Risk Aversion Bounded Rationality

Sunk Cost Fallacy

Evan spends all of his income on cheese and wine. A bottle of wine costs $20, and a pound of cheese costs $12. At his current consumption level, the marginal utility of a pound of cheese is 30 utils, and the marginal utility of a bottle of wine is 60 utils. In order to maximize his utility, Evan should: buy less of both wine and cheese. buy less wine and more cheese. buy more wine and less cheese. spend the same amount on cheese as he does on wine

buy more wine and less cheese.

Evan spends all of his income on cheese and wine. A bottle of wine costs $20, and a pound of cheese costs $12. At his current consumption level, the marginal utility of a pound of cheese is 30 utils, and the marginal utility of a bottle of wine is 60 utils. In order to maximize his utility, Evan should: buy less of both wine and cheese. buy less wine and more cheese. buy more wine and less cheese. spend the same amount on cheese as he does on wine.

buy more wine and less cheese.

Economic theory asserts that: consumers make their purchasing decisions based on prices alone, regardless of the utility derived from each good. because of diminishing marginal utility, consumers become less satisfied overall as they consume more units of one particular item. consumers instinctively follow the optimal consumption rule. most goods fit the definition of being Giffen goods.

consumers instinctively follow the optimal consumption rule.

Behavioral economics attempts to explain: the behavior of demand curves. how human psychology influences economic behavior. why sunk costs should be ignored in decision making. why economists behave differently from everyone else.

how human psychology influences economic behavior.

A project will generate an economic loss if: its total implicit and explicit costs are greater than its revenue. its implicit costs are greater than its explicit costs. its explicit costs are greater than its implicit costs. its revenue is greater than the opportunity cost of resources used.

its total implicit and explicit costs are greater than its revenue.

The economic profit of a given project will usually be ________ than the accounting profit because of the presence of ________ costs. less; explicit less; implicit more; implicit more; explicit

less; implicit

According to the optimal quantity rule, if the marginal benefit is: more than the marginal cost, an activity should be increased. less than the marginal cost, an activity should be increased. equal to the marginal cost, an activity should be increased. more than the marginal cost, net benefit is maximized.

more than the marginal cost, an activity should be increased.

Which of the following is an implicit cost? payments a firm would have received if it had rented out its property instead of using it payments received from customers for items produced wages and salaries paid to hourly production workers amounts paid to suppliers for production inputs

payments a firm would have received if it had rented out its property instead of using it

An increase in the price of CDs: reduces the marginal utility derived from each dollar spent on CDs. reduces the marginal utility derived from each CD purchased. will not have a substitution effect. will not change the number of CDs in your set of consumption possibilities.

reduces the marginal utility derived from each dollar spent on CDs.

Jill is 30 years old and contributes to a 401(k) retirement plan at work. She understands that investing in the stock market has historically produced the highest rate of return over the past 50 years, but that there is also the potential for large losses from time to time. Because of this understanding, Jill chooses to invest only 50% of her retirement funds in stock funds and the other half in safer investments. Jill's behavior is an example of: risk aversion. bounded rationality. irrational decision making. a concern for fairness.

risk aversion.

When economists say that consumers want to maximize their "bang for the buck," they mean consumers want ______. the highest level of satisfaction for the money they pay the same level of satisfaction no matter how many times they purchase a good the same level of satisfaction from substitutes as from the products they replace the highest level of satisfaction per util

the highest level of satisfaction for the money they pay

Paz loves to knit hats out of a special type of glow-in-the-dark yarn. Last week she noticed that the price of the yarn she uses had increased by $1.50 a skein. As a result, this week she bought only three skeins of yarn instead of her usual five. This is an example of ______. the income effect the substitution effect diminishing marginal utility consumer equilibrium

the income effect

At the profit-maximizing quantity of output: the average variable cost curve crosses the marginal revenue curve. the marginal cost curve crosses the marginal revenue curve. the average total cost curve crosses the market price. the marginal cost curve crosses the average revenue curve.

the marginal cost curve crosses the marginal revenue curve.

According to the law of diminishing marginal utility: consumers will always derive more utility from higher-priced products. consumers do not take price into account when deciding how much of a good to buy. total utility begins to decrease when marginal utility begins to increase. total utility increases at a decreasing rate as more of a good is consumed.

total utility increases at a decreasing rate as more of a good is consumed.