ECON212- Exam 3

Refer to the table above (4). What is the price that yields the maximum total revenue? -$3 -$4 -$5 -$2

$3

Refer to the figure above (1). At the equilibrium price of $6, the sellers' total revenues are equal to: -$360 -$300 -$50 -$150

$300

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium? -$8 and $12 -$6 and $4 -$16 and $9 -$4 and $6

$6 and $4

Answer the question based on the following data (3).What is the price elasticity of demand over the range of $8 to $10? -1.43 -0.11 -0.47 -1.93

0.47

If the prices of X and Y are $2 and $4 per unit, respectively, and this consumer has $10 in income to spend, to maximize total utility, this consumer should buy (13) -1 unit of X and 2 units of Y -1 unit of X and 1 unit of Y -5 units of X and no units of Y -2 units of X and 2 units of Y

1 unit of X and 2 units of Y

Suppose you are given the following data on demand for a product (9). The price elasticity of demand (based on the midpoint formula) when price decreases from $9 to $7 is: -1.16 -2.27 -0.63 -1.60

1.60

Refer to the diagram (12), in which the downsloping lines are budget lines and I1, I2, and I3 comprise an indifference map. The combinations of products M and N indicated by points 1, 3, and 5 are such that -3 implies a higher level of utility than does 1 or 5 -the person is indifferent among the three combinations -1 and 5 imply a higher level of utility than does 3 -all three imply the same level of utility

3 implies a higher level of utility than does 1 or 5

Refer to the data (11). The value for Y is -30 -45 -40 -25

45

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is -38 units of utility -8 units of utility -6 units of utility -26 units of utility

8 units of utility

The law of diminishing marginal utility states that -Total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed -Beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer -Price must be lowered to induce firms to supply more of a product -It will take larger and larger amounts of resources beyond some point to produce successive units of a product

Beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer

According to prospect theory, firms are more likely to shrink packages than raise prices because -They don't understand that consumers recognize price increases easily, regardless of what form they take -Consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money -Consumers are generally trying to downsize their purchases and lead simpler lives -Consumers associate smaller packages with higher quality luxury goods

Consumers feel the loss of a price increase more than they feel the loss of buying a smaller package for their money

Consider the demand curve above (2). 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: -Equal zero -Remain constant -Decrease -Increase

Decrease

Diminishing marginal utility explains why -Demand curves are downsloping -The income effect exceeds the substitution effect -Supply curves are upsloping -The substitution effect exceeds the income effect

Demand curves are downsloping

Along a linear downward-sloping demand curve, the price elasticity of demand will be: -Less than one across each price range -Different across each price range -Greater than one across each price range -Equal to zero across each price range

Different across each price range

Refer to the above graph (7). Consider a situation where price increases from P3 to P4. In this price range, demand is relatively: -Inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A) -Inelastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G) -Elastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G) -Elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A)

Elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A)

Refer to the graphs above (6). A price increase from $20 to $40 causes quantity demanded to decrease from 100 units to 50 units. Which graph best illustrates the demand for this good? -Graph D -Graph C -Graph A -Graph B

Graph B

If in the short run the demand for mass transit is inelastic and in the long run the demand is elastic, then a price: -Increase will increase total revenue in the short run but decrease total revenue in the long run -Decrease will decrease total revenue in the short run and decrease total revenue in the long run -Increase will decrease total revenue in the short run but increase total revenue in the long run -Decrease will increase total revenue in the short run but decrease total revenue in the long run

Increase will increase total revenue in the short run but decrease total revenue in the long run

Refer to the total revenue graph above (5). If the quantity of product X demanded falls from 14,000 to 10,000 units, then it suggests that the price of X was: -Reduced and the demand is inelastic -Increased and the demand is inelastic -Reduced and the demand is elastic -Increased and the demand is elastic

Increased and the demand is inelastic

An indifference curve -Is upsloping and has a constant slope -Is downsloping and convex to the origin -May be either upsloping or downsloping, depending on whether the two products are complemenbts or substitutes -Is downsloping and concave to the origin

Is downsloping and convex to the origin

Any combination of goods lying outside of the budget line -Is unattainable, given the consumer's income -Yields less utility than any point inside the budget line -Yields less utility than any point on the budget line -Implies that the consumer is not spending all his income

Is unattainable, given the consumer's income

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers? -Many of these are small items that people will buy on an impulse -Stores try to make frequently purchased items quicker and easier for consumers to access. -Those are the shelving locations that minimize costs. -Smaller items tend to fall through shopping cart holes, so stores reduce that problem for consumers by having smaller items at the checkout stands.

Many of these are small items that people will buy on an impulse

Which of the following best explains the difference between neoclassical economics and behavioral economics? -There is no real different; behavioral economics just studies more intently how the rational decision-making process works -Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does -Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government -Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors

Why do people tend to eat more at all-you-can-eat buffet restaurants than at restaurants where each item is purchased separately? -MU/P is consistently greater at all-you-can-eat restaurants -Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero -People who eat at all-you-can-eat restaurants do not experience diminishing marginal utility. -Food at all-you-can-eat restaurants tends to have fewer calories, so consumers feel the need to consume a greater volume of food

Once the all-you-can-eat meal is purchased, consumers view additional trips back to the buffet as having a price of zero.

Refer to the above graph (10). If the demand increased, then: -Price and quantity would both increase -Price and quantity would both decrease -Price would stay the same and total revenues of sellers would stay the same -Price would stay and total revenues of sellers would increase

Price would stay the same and the total revenues of sellers would increase

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by -Increasing the unit prices of their products -Reducing the unit sizes of their products -Passively accepting lower profits -Producing more units of their products

Reducing the unit sizes of their products

Which of the following would represent a systematic error? -Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work -Ellen paid good money for a used car that is in constant need of repair. -Eddie regularly overspends. Friends and family bail him out, however, so he always ends up with what he wants. -Clark makes regular math errors at work, sometimes coming out with figures too high, other times too low.

Sparky determines that he has to reduce donut consumption to lose weight but always ends up eating the ones provided in the break room at work

In moving along a given budget line, -The prices of both products and money income are assumed to be constant -The prices of both products are assumed to vary, but money income is constant -Each point on the line will be equally satisfactory to consumers -Money income varies, but the prices of the two goods are constant

The prices of both products and money income are assumed to be constant

A negative income elasticity of demand coefficient indicates that: -The product is an inferior good -The product is a substitute good -The product follows the law of demand -The product is a complementary good

The product is an inferior good

What do the income effect, the substitution effect, and diminishing marginal utility have in common? -They all help explain the upsloping supply curve -They are all empirically measurable -They all help explain the downsloping demand curve -All are required to explain the utility-maximizing position of a consumer

They all help explain the downsloping demand curve

Refer to the total revenue graph above (8). When the seller is earning maximum revenues from selling Product X, the demand is: -Inelastic -Perfectly inelastic -Elastic -Unit-Elastic

Unit-Elastic

The elasticity of supply for a product will be 2 if: -a 2 percent decrease in price causes a 2 percent decrease in quantity supplied -a 1 percent decrease in price causes a 2 percent decrease in quantity supplied -a 2 percent decrease in price causes a 1 percent decrease in quantity supplied -a 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied

a 1 percent decrease in price causes a 2 percent decrease in quantity supplied

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 -planning fallacy -self-serving bias -framing effects -confirmation bias

confirmation bias

According to behavioral economists, giving to charity -is done solely to receive the utility from public recognition -appears unselfish but in fact is driven by self-interest -results from an ability to accurately calculate benefits and costs -contradicts the view that people are narrowly self-interested

contradicts the view that people are narrowly self-interested

An indifference map implies that -curves farther from the origin yield higher levels of total utility -money income is constant, but the prices of the two products vary directly with the quantities purchased -a consumer is better off to be at some point high on a given curve as opposed to a point low on the same curve -the two products under consideration are perfectly substitutable for one another

curves farther from the origin yield higher levels of total utility

The dictator game -reveals nothing important about economic behavior because the money used is hypothetical -demonstrates nothing definitive about fairness, as concerns about the other player's perceptions will influence the dictator's choices. -regularly results in the dictator taking all of the money for him/herself, as economic theory would predict. -demonstrates that people care about fairness and will sacrifice financially for others

demonstrates that people care about fairness and will sacrifice financially for others

According to behavioral economics, placement of goods in retail stores is often designed to accomplish which of the following? -maximize the amount of product the store can display -maximize impulse buying by consumers -minimize shelving costs -maximize convenience for customers

maximize impulse buying by consumers

Children who dislike Brussels sprouts exemplify the notion that the marginal utility of Brussels sprouts is -zero -negative -less than the total utility -positive, but decreasing

negative

In introducing the opportunity cost of time into the theory of consumer behavior, we find that, all else equal, -One should consume less of time-intensive goods -One should consume more of time-intensive goods -The marginal utility derived from each product must be multiplied by consumption time in determined equilibrium -the consumer's equilibrium position is not altered

one should consume less of time-intensive goods

Some people's tendency to believe that they are better than average at making judgments or opinions is called the -self-serving bias -confirmation bias -framing effects -overconfidence effect

overconfidence effect

For economists, "myopia" refers to -people's tendency to focus on microeconomic concerns because of an inability to conceptualize macroeconomics. -people's difficulty in conceptualizing the future. -people's tendency to put too much emphasis on the future and ignore important present concerns. -visual nearsightedness.

people's difficulty in conceptualizing the future

When students end up doing "all-nighters" just to finish a term paper, it illustrates the -hindsight bias -availability heuristic -framing effect -planning fallacy

planning fallacy

Salary smoothing, automatic payroll deductions, and early withdrawal penalties are all examples of -precommitments -hardwired heuristics -policies that do not fundamentally alter decisions because they do not change the benefits or costs of an action -mechanisms imposed by companies to extract more from their workers and customers

precommitments

The price elasticity of demand is a measure of the: -sensitivity of a good's price to changes in demand -effects of changes in demand on the price -relationship between price and profitability -responsiveness of buyers of a good to changes in its price

responsiveness of buyers of a good to changes in its 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? -overconfidence effect -hindsight bias -self-serving bias -confirmation bias

self-serving bias

According to prospect theory, people tend to favor default options. This is known as the -self-serving bias -availability heuristic -status quo bias -framing bias

status quo bias