Microeconomics Chapter 10

In an opinion​ survey, Snoopy was found to be the most appealing celebrity endorser. The beagle from the popular Peanuts comic strip appeared in commercials for the insurance company MetLife. _____________________________________________________ 1.) The advantages of using Snoopy are that he always appears to be A. lovable, funny and he has a reassuring aura. B. aggressive and​ fast-talking through the advertisement. C. boring and​ dull, just like an insurance sales man. D. a scary and menacing dog causing fear. _____________________________________________________ 2.) The disadvantages of using Snoopy are that he appears to be A. too worldly and informed on matters of life and death. B. knowledgeable and wise about insurance laws. C. serious and focused on his finances. D. too cute and cuddly to be giving insurance advice.

1.) A. lovable, funny and he has a reassuring aura. 2.) D. too cute and cuddly to be giving insurance advice.

In early​ 2015, gasoline prices in many parts of the United States had fallen to below​ $2.00 per​ gallon, which a news story called​ "one of the swiftest declines on​ record." _____________________________________________________ 1.) For most​ people, gasoline is likely to be A. an inferior good because as incomes increase people drive less. B. an inferior good because as the price increases people drive more. C. a normal good because as incomes increase people drive more. D. a normal good because as the price increases people drive less. _____________________________________________________ 2.) Why is your answer important for predicting how much the quantity of gasoline demanded will increase as a result of the price​ decline? When the price of a good​ declines, the income effect tells us that the quantity demanded will _______ if the good is a normal good than if it is an inferior good.

1.) C. a normal good because as incomes increase people drive more. 2.) increase more

What is the economic definition of​ utility? Utility is _____________________________________________________ A. the decrease in additional satisfaction consumers receive as they consume more of a good or service during a given period of time. B. the difference between the highest price a consumer is willing to pay and the price the consumer actually pays. C. the enjoyment or satisfaction people receive from consuming goods and services. D. the change in enjoyment or satisfaction a person receives from consuming one additional unit of a good or service. E. the sum of consumer and producer surplus. _____________________________________________________ Is it​ measurable? ____

1.) C. the enjoyment or satisfaction people receive from consuming goods and services. 2.) no

Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of​ $5.00 per movie and to purchase 5 CDs per month at a cost of​ $10.00 per CD. Your marginal utility from the fifth movie is 20 and your marginal utility from the fifth CD is 44 _____________________________________________________ 1.) Are you maximizing​ utility? You are A. maximizing utility because you are spending all of your entertainment budget. B. not maximizing utility because the price of movies is not equal to the price of CDs. C. not maximizing utility because the marginal utility of movies is not equal to the marginal utility of CDs. D. maximizing utility because you are consuming an equal number of movies and CDs. E. not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. _____________________________________________________ 2.) What could you do to increase​ utility? You could increase utility by consuming more ____ and fewer ____

1.) E. not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs. 2.) more CDS and fewer movies

1.) Behavioral economics is the study of A. social influences on decision making. B. obtaining information to make economically rational decisions. C. the economically rational actions people take to reach their goals. D. fairness in decision making. E. situations in which people make choices that do not appear to be economically rational. _____________________________________________________ 2.) Three mistakes consumers often make are A. ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future. B. failing to ignore nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and making decisions without full information. C. ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly pessimistic about the future. D. ignoring nonmonetary opportunity​ costs, ignoring sunk​ costs, and being overly optimistic about the future. E. ignoring nonmonetary opportunity​ costs, ignoring sunk​ costs, and making decisions without full information.

1.) E. situations in which people make choices that do not appear to be economically rational. 2.) A. ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future.

In which of the following situations does the law of diminishing marginal utility not​ hold? _____________________________________________________ A. For methamphetamine​ addicts, the more dosages of the illegal​ drug, the more euphoric they become. B. Mike finds that the additional utility of driving his new car around the block fell after four trips. C. I tried​ skiing, but after two runs I was too cold and wanted to sit in the ski lodge. D. After eating three pieces of​ pizza, I am thirsty and want a coke.

A. For methamphetamine​ addicts, the more dosages of the illegal​ drug, the more euphoric they become.

Marty and Ann discussed the rule of equal marginal utility per dollar​ spent, a topic that was recently covered in the economics course they were both​ taking: ​Marty:​ "When I use my calculator to divide the marginal utility of pizza by a price of​ zero, I​ don't get an answer. This result must mean that if pizza were being sold for a price of zero the quantity demanded would be​ infinite." ​Ann:​ "Marty, that​ can't be true. No producer would be willing to sell​ pizza, or any other​ product, for a zero price. Quantity demanded cannot be​ infinite, so zero prices cannot appear on demand curves and demand​ schedules." _____________________________________________________ Assume that Marty and Ann ask you for advice. Which of their statements is​ correct? _____________________________________________________ A. Neither is correct. B. Both are correct. C. Ann is correct. D. Marty is correct.

A. Neither is correct.

What is the definition of marginal​ utility? _____________________________________________________ A. The change in utility from consuming an additional unit of a good or service. B. The enjoyment or satisfaction people receive from consuming goods and services. C. The average utility from consuming a good or service multiplied by the number of units of that good or service consumed. D. The utility from consuming a good or service divided by the number of units of that good or service consumed. E. Utility measured in utils.

A. The change in utility from consuming an additional unit of a good or service.

Which of the following products is most likely to have significant network externalities _____________________________________________________ A. smartphones B. Dog food C. 3D television sets D. LCD television sets

A. smartphones

The law of diminishing marginal utility suggests that _____________________________________________________ A. consumers experience less total satisfaction as they consume more of a good or service. B. consumers experience diminishing additional satisfaction as they consume more of a good or service. C. consumers experience diminishing additional satisfaction on lower budget constraints. D. consumers experience diminishing additional satisfaction from a good or service over time. E. consumers experience less total satisfaction from inferior goods than from normal goods.

B. consumers experience diminishing additional satisfaction as they consume more of a good or service.

When the price of a product​ changes, _____________________________________________________ A. it only causes a substitution effect by changing the relative price of the product. B. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well. C. it only causes an income effect by changing the purchasing power of the consumer. D. it changes the relative price of the product causing a network effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

B. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

According to the law of diminishing marginal​ utility, as the consumption of a particular good​ increases, _____________________________________________________ A. total utility increases by larger and larger amounts. B. marginal utility decreases. C. total utility decreases. D. marginal utility increases.

B. marginal utility decreases.

What role does utility play in the economic model of consumer​ behavior? _____________________________________________________ When modeling consumer​ behavior, utility A. provides an objective measure of enjoyment from consuming a particular set of goods and services in units called​ "utils." B. reflects the satisfaction a consumer receives from consuming a particular set of goods and services. C. identifies the combination of goods and services that can be produced most efficiently. D. identifies the combination of goods and services that is most expensive. E. identifies the consumer who receives the most satisfaction from consuming a particular set of goods and services.

B. reflects the satisfaction a consumer receives from consuming a particular set of goods and services.

Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first​ book, but unfortunately you​ can't find it for sale for less than​ $5,000. You are willing to pay at most​ $200 for a​ copy, but​ can't find one at that price until one day in a used bookstore you see a copy selling for​ $10, which you immediately buy. _____________________________________________________ If you keep the copy rather than sell​ it, then all of the following are correct except A. you have made choices that do not appear to be economically rational. B. you are behaving in a way that can be explained by the endowment effect. C. you are making a rational choice since the opportunity cost of the book is​ $5,000. D. you value the book you already own more than a book you do not yet own.

C. you are making a rational choice since the opportunity cost of the book is​ $5,000.

Las Vegas is one of the most popular tourist destinations in the United States. In November​ 2008, the Rio Hotel and Casino in Las Vegas dropped the price of its breakfast buffet to​ $5.99 for local​ residents, while keeping the regular price of​ $14.99 for nonlocals. _____________________________________________________ Why would the restaurant do​ this? A. They wanted to appear unfair to tourists. B. Tourists will return often to the restaurants. C. They had a more difficult time raising prices when it was justified by cost increases. D. They were willing to trade off some profits to keep their regular customers happy.

D. They were willing to trade off some profits to keep their regular customers happy.

How does the fact that consumers apparently value fairness affect the decisions that businesses​ make? _____________________________________________________ A. Firms will raise prices in response to an increase in demand. B. Firms will not raise prices in response to an increase in costs. C. Firms are not affected by​ consumers' value of fairness. D. Firms will not raise prices in response to an increase in demand. E. Firms will set prices equal to the​ long-run average cost of production.

D. Firms will not raise prices in response to an increase in demand.

When does the law of diminishing marginal utility hold true? _____________________________________________________ A. It holds true in every situation. B. It does not hold true for necessities. C. It has not proven to be true. D. It holds true in most situations involving the consumption of a good.

D. It holds true in most situations involving the consumption of a good.

A budget​ constraint: _____________________________________________________ A. indicates the marginal rate of substitution. B. shows the rate at which a consumer would be willing to trade off one good for another. C. shows the change in total utility a consumer receives from consuming one additional unit of a good or service. D. indicates the limited amount of income available to consumers to spend on goods and services. E. shows the combinations of consumption bundles that give the consumer the same utility.

D. indicates the limited amount of income available to consumers to spend on goods and services.

How does using​ 'rules of​ thumb' impact the likelihood of a consumer making an optimal​ choice? Consumer utility _____________________________________________________ A. may be​ sub-optimized because rules of thumb incorporate all available information. B. is optimized because rules of thumb are short cut rules for decision making. C. is optimized because rules of thumb incorporate all available information. D. may be​ sub-optimized because rules of thumb may not reflect current reality.

D. may be​ sub-optimized because rules of thumb may not reflect current reality.

Economically rational means that consumers and firms _____________________________________________________ A. take into account monetary costs but ignore nonmonetary opportunity costs. B. obtain full information prior to taking actions to reach goals. C. take into account monetary costs and sunk costs. D. take actions that are appropriate to reach goals given available information. E. are realistic about the present but not necessarily the future.

D. take actions that are appropriate to reach goals given available information.

The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by _____________________________________________________ A. equalizing marginal utility across goods and services. B. consuming goods and services until marginal utility is zero. C. maximizing the marginal rate of substitution. D. minimizing the marginal utility per dollar spent across goods and services. E. equalizing the marginal utility per dollar spent across goods and services.

E. equalizing the marginal utility per dollar spent across goods and services.

Marginal utility is more useful than total utility in consumer decision making because _____________________________________________________ A. consumers maximize utility by equalizing marginal utility from each good. B. consumers maximize utility by maximizing marginal utility from each good. C. optimal decisions are made by consuming until marginal utility becomes negative. D. it is possible to measure marginal utility but not total utility. E. optimal decisions are made at the margin.

E. optimal decisions are made at the margin.

True or False _____________________________________________________ Utility refers to how much consumers utilize a product or service.

False

True or False _____________________________________________________ The economic model of consumer behavior predicts that consumers will choose to buy the combination of goods and services that makes them as well off as possible from among all the combinations that their budgets allow them to buy.

True