Econ test ch 6-8
After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the:
Marginal utility is positive for the fourth slice and negative for the fifth slice
The substitution effect:
Measures the change in the quantity demanded of a good from a change in its relative price
Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?
Self-serving bias.
The reason why people are charged for an additional can of soda they get from a soda machine, but are not charged for an additional paper taken from a newspaper dispensing machine, is that the marginal utility of an additional:
Soda diminishes slowly, but the marginal utility of an additional paper is close to zero
Heuristics:
are shortcuts that save time and energy in decision making.
Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an:
Elastic demand to see movies in the afternoon
If the price-elasticity coefficient for a good is .75, the demand for that good is described as:
Inelastic
Josh will receive a salary of $300,000 next year. According to prospect theory:
Josh's satisfaction with that salary depends on how much he made in the past.
At point X on the graph above, which depicts a consumer's indifference curve for goods A and B and the relevant budget constraint line, we know that:
MUA/PA = MUB/PB
Many people do not steal or commit fraud because to them, the resulting feelings of guilt and uneasiness make the:
Marginal cost of the act increase
The satisfaction or pleasure one gets from consuming a good or service is called:
Utility
Buck carefully plans out an early morning exercise routine to lose weight and get fit. When it's time to work out, however, Buck just "doesn't feel up to it" and decides to sleep in. Behavioral economics would say that Buck:
used System 2 of his brain to formulate his workout plan, but then gave in to System 1 when he chose to sleep in.
Consider the demand curve above. If the price is A, then the total revenues of sellers would be the area:
0ABC
You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10% through a price-change, what should you do to price?
increase price by 12.5%
(Consider This) According to the piece "Wannamaker's Lament":
most marketing efforts have little impact on sales.
Behavioral economists believe that people:
often succumb to temptation.
In anonymous surveys, on average people rate themselves as "above average" with regard to characteristics such as intelligence, perceptiveness, and driving ability. According to behavioral economics, this contradictory result would most likely be caused by the:
overconfidence effect
Consider the demand curve above. If area 0ABC is smaller than area 0DEF, we may conclude that demand in this range is:
price-elastic
According to behavioral economists, someone suffering from myopia is most likely to:
spend too much on present consumption and not save enough for the future.
In spending all his income on beer and pizza, Fred finds that the marginal utility of the last pizza he consumed is 8, and the marginal utility of the last bottle of beer is 4. The price of a bottle of beer is $1.50. If Fred has maximized his utility, the price of pizza must be:
$3.00
Blossom, Inc. sells 500 bottles of perfume a month when the price is $7. A huge increase in resource costs forces Blossom to raise price to $9, and the firm only manages to sell 460 bottles of perfume. The price elasticity of demand is:
0.33 and inelastic
When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price-elasticity of demand coefficient for this product is:
1.5
Suppose you are given the following data on demand for a product. The price elasticity of demand (based on the midpoint formula) when price decreases from $9 to $7 is:
1.60
The price of season tickets to a performing arts theater decreases by 3 percent. As a result, the quantity demanded increases by 6 percent. The price elasticity of demand for season tickets is:
2
Refer to the above table. What is the marginal utility of the fourth unit?
44
If sellers could price-discriminate and charge two different prices to two different groups of buyers in order to increase revenues, then the sellers would charge:
A higher price to the buyers whose demand is inelastic
An indifference curve shows:
All combinations of two products from which the consumer derives a specific level of total utility
Consider the parallel demand curves in the figure above. Which curve is relatively more elastic at P1?
BB
We use the midpoint formula in computing the price elasticity of demand coefficient in order to:
Convert absolute changes into percent-changes
The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules D1, D2, D3, and D4, respectively. A 2 percent increase in price will result in an increase in total revenues in which of the following cases:
D2 and D4
Refer to the above graphs. Which graph shows a change in the buyer's income, but no changes in the prices of X and Y?
Graph A
Refer to the above graphs. Which graph depicts a situation where sellers are increasing their output because their product is becoming more popular among buyers?
Graph B
Refer to the graphs above. Which one shows demand with a price-elasticity coefficient equal to zero?
Graph C - Vertical line
When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition:
Have inelastic demand and students who use financial aid have elastic demand
In deciding what to buy, the consumer will choose the good with the:
Highest marginal utility-to-price ratio
When the price of a product falls for a normal good, the:
Income and substitution effects will encourage consumers to purchase more of the product
An increase in the productivity of labor over time will:
Increase the value of time
Which of the following best explains the difference between neoclassical economics and behavioral economics?
Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?
People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.
If a college admits only a fixed number of applicants every year, then the school's supply curve for admissions is:
Perfectly inelastic
Assume a round of golf requires four hours of leisure time, and attending a concert requires two hours. If the price of a round of golf is $40 and the price of a concert is $80, ceteris paribus, Joe will play:
Relatively less golf and attend relatively more concerts whenever his leisure time becomes more scarce
The price elasticity of demand is a measure of the:
Responsiveness of buyers of a good to changes in its price
Which of the following defines marginal utility?
The additional satisfaction from consuming one more unit of a product
The increase in demand for iPad tablet computers can be explained by:
The enhanced versatility and storage capacity of iPads, making their MU/P increase
Total utility is best defined as the:
Total satisfaction received from consuming a given amount of a product
If a product has a diminishing, but positive, marginal utility, then:
Total utility increases at a diminishing rate
A consumer allocates all income between two products, A and B. If, on an indifference map, the equilibrium position shifts onto a higher indifference curve, then:
Total utility must have increased
What are the two categories of cognitive biases identified by behavioral economists?
Unevolved capacity for solving modern problems and faulty heuristics.
Health insurance often pays 80 percent of health care cost. This situation will encourage the rational consumer to:
Use more medical services than they would if they had to paid the full price
According to behavioral economics, cognitive biases:
are misunderstandings or misperceptions that cause systematic error.
Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassic economist would expect Susie to:
carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value. Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel. As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from:
confirmation bias.
Consider the demand curve above. If area 0ABC is smaller than area 0DEF, it suggests that if the price increases from D to A, then total revenues of sellers will:
decrease
According to behavioral economists, people's preferences toward a particular outcome:
depend heavily on the contextual information that defines whether that outcome is a gain or a loss.
The threat of rejection in market transactions:
does all of these.
According to behavioral economics:
each successive unit of loss hurts, but less than the previous unit.
A central focus of prospect theory is:
how people deal with "bads," as well as how they deal with "goods."
Because of "mental accounting:"
people isolate purchases and sometimes make irrational decisions.
For economists, "myopia" refers to:
people's difficulty in conceptualizing the future.
The Law of Supply suggests that the price-elasticity of supply is:
positive
