Micro Ch 10

In deciding between consuming more goods now or saving​ money, consumers should do which of the​ following? A. Weigh the additional utility they get from consumption. B. Choose an amount of current spending which gives them the highest total utility. C. Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal. D. Allocate their spending to which of the two they like best.

Choose an amount of current spending on goods and savings so that the marginal utility per dollar of both are equal.

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

False

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 set prices equal to the​ long-run average cost of production. C. Firms will not raise prices in response to an increase in demand. D. Firms will not raise prices in response to an increase in costs. E. Firms are not affected by​ consumers' value of fairness.

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

In a column of​ forbes.com, Patrick​ Rishe, an economist at Washington​ University, notes that in recent years the National Football League has significantly expanded the number of games it broadcasts. As a​ result, he​ argues: "The NFL has oversaturated the market with its product.... TV​ ratings, consequently, have fallen. At least in​ part, diminishing marginal utility is a likely explanation as to​ why." ​Source: Patrick​ Rishe, "2016 NFL TV Ratings​ Decline: Has Diminishing Marginal Utility Set​ In?" forbes.com, December​ 6, 2016. Briefly explain his reasoning. A. Fans of the National Football League have a limited amount of income available to spend on NFL games. B. Football fans receive little enjoyment or satisfaction from watching NFL games on TV. C. NFL fans experience less additional satisfaction as they watch more NFL games. D. NFL fans enjoy watching NFL games less when the number of other fans increases.

NFL fans experience less additional satisfaction as they watch more NFL games.

For what types of products are network externalities likely to be​ important? Network externalities are likely to be important for products that A. are widely used . B. use inferior technology. C. are perishable. D. are inexpensive. E. both a and b.

both a and b.

In which of the following situations are social influences on consumer decision making likely to be​ greater: choosing a restaurant for dinner or choosing a brand of toothpaste to​ buy? Consumer decision making is likely to be more affected by social influences when A. choosing a restaurant for dinner because consumers tend to have more knowledge about this form of consumption. B. choosing a restaurant for dinner because this takes place publicly. C. choosing a restaurant for dinner because such consumption has fewer celebrity endorsements. D. choosing a brand of toothpaste because this typically costs less . E. choosing a restaurant for dinner because there are no network externalities.

choosing a restaurant for dinner because this takes place publicly.

The rule of equal marginal utility per dollar spent suggests that consumers maximize utility by A. equalizing marginal utility across goods and services. B. maximizing marginal utility for each good or service . C. minimizing the marginal utility per dollar spent across goods and services. D. maximizing the marginal rate of substitution. E. equalizing the marginal utility per dollar spent across goods and services.

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

Three mistakes consumers often make are A. ignoring nonmonetary opportunity​ costs, ignoring sunk​ costs, and making decisions without full information. B. ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future. C. ignoring nonmonetary opportunity​ costs, ignoring sunk​ costs, and being overly optimistic about the future. D. failing to ignore nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and making decisions without full information. E. ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly pessimistic about the future.

ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future.

When the price of a product​ changes, A. 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. B. it only causes a substitution effect by changing the relative price of the product. C. 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. D. it only causes an income effect by changing the purchasing power of the consumer.

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. marginal utility decreases. Your answer is correct. B. marginal utility increases. C. total utility increases by larger and larger amounts. D. total utility decreases.

marginal utility decreases

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

optimal decisions are made at the margin.

An article in the New York Times about J.C.​ Penney's pricing strategy under former CEO Ron Johnson​ observes: ​"Penney had pulled up the​ anchor, only to see many of its customers sail​ away." ​Source: Stephanie Clifford and Katherine​ Rampell, "Sometimes We Want Prices to Fool​ Us," New York Times​, April​ 13, 2013. In behavioral​ economics, an​ "anchor" is A. setting the highest possible price for a product. B. linking the price of one product to another product. C. setting the lowest possible price for a product. D. relating an unknown value or price to another similar known value or price.

relating an unknown value or price to another similar known value or price.

The optimal combination of pizza and coke you should consume is the one A. where your marginal utility of pizza equals your total utility of​ pizza, and your marginal utility of coke equals your total utility of coke. B. where your total utility of pizza equals your total utility of coke. C. where your marginal utility of pizza equals your marginal utility of coke. D. where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke

where your marginal utility per dollar spent on pizza equals your marginal utility per dollar spent on coke

Would the​ team's decision be affected if Cain were receiving the major league minimum salary of​ $535,000? Briefly explain. A. ​Yes, it would affect the​ Giant's decision because​ Cain's salary would be much less expensive. B. ​Yes, a lower salary would affect the​ team's decision because​ Cain's productivity might be greater than his salary. C. ​No, a lower salary would not affect the​ team's decision because all sunk costs are still irrelevant. D. ​No, it would not affect the​ Giant's decision because​ Cain's salary would still have an opportunity cost.

​No, a lower salary would not affect the​ team's decision because all sunk costs are still irrelevant.

The income effect causes quantity demanded to​ ________ when the price of a normal good​ decreases, and causes quantity demanded to​ ________ when the price of an inferior good decreases. A. ​increase; increase B. ​decrease; decrease C. ​increase; decrease D. ​decrease; increase

​increase; decrease

Which of the following mistakes do consumers commonly commit when making​ decisions? A. They fail to ignore sunk costs. B. They take into account monetary costs but ignore nonmonetary opportunity costs. C. They are unrealistic about their future behavior. D. All of the above are mistakes consumers commonly commit when making decisions.

All of the above are mistakes consumers commonly commit when making decisions.

Which of the following reasons do economists use to explain why people are​ overweight? A. People undervalue the utility to be received in the future. B. ​People's preferences are not consistent over time. C. People overvalue the utility from current choices. D. All of the above explain why people are overweight.

All of the above explain why people are overweight.

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

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 less total satisfaction on lower budget constraints. D. consumers experience less total satisfaction from inferior goods than from normal goods. E. consumers experience less total satisfaction from a good or service over time.

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

Anchoring is relating a value to some other known value A. that the customer has previously experienced. B. only when the second value is irrelevant. C. even if the second value is irrelevant. D. except when the second value is irrelevant.

even if the second value is irrelevant.

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.

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

Baseball writer Rob Neyer described attending a Red Sox game at Fenway Park in Boston and having a seat in the sun on a​ hot, humid​ day: ​"Granted, I could have moved under the overhang and enjoyed​ today's contest from a​ nice, cool, shady seat. But when you paid​ forty-five dollars for a ticket in the fourth​ row, it's tough to move back to the​ twenty-fourth [row]." ​Source: Rob​ Neyer, Feeding the Green Monster​, New​ York: iPublish.com,​ 2001, p.50. What should Rob​ do? A. He should move into the shade. B. He should weigh the marginal cost of moving into the shade​ (a less desirable​ view) versus the marginal benefit of being under the shade. C. He should weigh the additional cost of his ticket plus the additional cost of being in the sun. D. He should not ignore the price he paid for the ticket.

He should weigh the marginal cost of moving into the shade​ (a less desirable​ view) versus the marginal benefit of being under the shade

According to the endowment​ effect, people appear to be behaving irrationally when they are unwilling to sell a good they already own in which of the following​ situations? A. If they are offered a price lower than the price they would have to pay to replace the good. B. If the good was a gift that had great sentimental value. C. If they are offered a price greater than the price they would pay if they did not already own the good. D. If they​ can't replace the good.

If they are offered a price greater than the price they would pay if they did not already own the good.

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

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

The following excerpt is from a letter sent to a financial advice​ columnist: ​"My wife and I are trying to decide how to invest a​ $250,000 windfall. She wants to pay off our​ $114,000 mortgage, but​ I'm not eager to do that because we refinanced only nine months​ ago, paying​ $3,000 in fees and​ costs." ​Source: Liz​ Pulliam, Los Angeles Times advice​ column, March​ 24, 2004. How should the​ $3,000 in fees and costs be​ considered? A. It should be taken into consideration in the decision as to whether or not to pay off the mortgage. B. It is an explicit cost of paying off the mortgage. C. It is a sunk cost and should not be taken into account when deciding to pay off the mortgage. D. It is a sunk cost and should be taken into account when deciding to pay off the mortgage.

It is a sunk cost and should not be taken into account when deciding to pay off the mortgage.

What is a budget​ constraint? A. It is the limited amount of income available to consumers to spend on goods and services. B. It is the amount of income that yields equal marginal utility per dollar spent. C. It is the amount of utility that a consumer receives from spending a limited amount of income on goods and services. D. It is the amount of money necessary to purchase a given combination of goods.

It is the limited amount of income available to consumers to spend on goods and services.

In considering the attitudes of consumers toward​ fairness, which of the following have economists found to be​ true? A. People attempt to treat others​ fairly, even if doing so makes them worse off financially. B. People attempt to treat others​ fairly, but only if doing so makes them better off financially. C. People are interested only in making themselves as well off as possible. D. People usually ignore fairness when making spending decisions.

People attempt to treat others​ fairly, even if doing so makes them worse off financially.

​____________, winner of the 2017 Nobel Prize in​ economics, has popularized the idea of devising nudges to lead people to making better decisions. A. Paul Krugman B. Robert Shiller C. Oliver Hart D. Richard Thaler

Richard Thaler

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

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

What happens when consumption of a product is path​ dependent? A. The cost of switching to a product with a better technology gives the product with the initial technology an advantage. B. The technology used to produce the product has a specific growth path. C. The consumption path that a product follows depends on the firm that uses the best technology to produce it. D. The product can sell for a higher price when it is new and there are no similar products consumers can buy than when it is older and consumers can choose to buy substitutes for the product.

The cost of switching to a product with a better technology gives the product with the initial technology an advantage.

What happens when network externalities are​ present? A. The usefulness of a product decreases as the number of firms selling the product increases. B. The usefulness of networks diminishes with the number of consumers who enter them. C. The usefulness of a product increases with the number of consumers who use it. D. The usefulness of telecommunications equipment rises.

The usefulness of a product increases with the number of consumers who use it.

LaToya is buying corn chips and soda. She has 4 bags of corn chips and 5 bottles of soda in her shopping cart. The marginal utility LOADING... of the fourth bag of corn chips is​ 10, and the marginal utility of the fifth bottle of soda is also 10. Is LaToya maximizing​ utility? A. Yes. She is maximizing utility. B. This cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda. C. No. She is not maximizing marginal utility. D. No. She is maximizing marginal utility but not total utility.

This cannot be determined because we do not know the price of corn chips and soda and whether or not she fully spent her budget allocated to corn chips and soda.

The marginal utility per dollar you are spending on iTunes music downloads is less than the marginal utility per dollar you are spending on Red Bull. According to the rule of equal marginal utility per dollar​ spent, what can you do to increase your total utility from consumption of music downloads and Red​ Bull? A. You can increase your consumption of Red Bull. B. You can decrease your consumption of both goods. C. You can increase your consumption of both goods. D. You can increase your consumption of music downloads.

You can increase your consumption of Red Bull.

The substitution effect is the change in the quantity demanded of a good that results from​ ______________, holding constant the effect of the price change on consumer purchasing power. A. an increase in the usefulness of a product as the number of consumers who use it increases B. a change in price making the good more or less expensive relative to other goods C. a change in the price of a substitute for the good D. the tendency of people to be unwilling to sell something they own

a change in price making the good more or less expensive relative to other goods

A firm can use anchoring to influence consumer choices so as to increase sales by marking A. a high​ "sale price" on a​ product, which makes the regular price appear to be a bargain. B. a high​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain. C. a low​ "sale price" on a​ product, which makes the regular price appear to be a bargain. D. a low​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain.

a high​ "regular price" on a​ product, which makes the discounted​ "sale price" appear to be a bargain.

Network externalities are present when the usefulness of a product A. increases because there is no market failure. B. increases because there are no switching costs. C. increases with the endowment effect. D. decreases because it is endorsed by celebrities . E. increases with the number of consumers who use it.

increases with the number of consumers who use it.

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

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 may not reflect current reality. B. is optimized because rules of thumb are short cut rules for decision making. C. may be​ sub-optimized because rules of thumb incorporate all available information. D. is optimized because rules of thumb incorporate all available information.

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

Behavioral economics is the study of A. fairness in decision making. B. situations in which people make choices that do not appear to be economically rational. C. social influences on decision making. D. the economically rational actions people take to reach their goals. E. obtaining information to make economically rational decisions.

situations in which people make choices that do not appear to be economically rational.

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

smartphones.

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

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

Marvin visits his aunt and uncle who live in Milwaukee. The Milwaukee Bucks basketball team is scheduled to play a home game against the Golden State Warriors during​ Marvin's visit. An online broker has a ticket for sale in Section 212 of the arena where the game will be played but the​ price, $75, is more than Marvin is willing to pay. From another online ticket broker he buys a ticket for​ $50 for a seat in Section 212 of the arena. On the day of the​ game, a friend of​ Marvin's uncle offers to pay Marvin​ $75 for his ticket. He declines the offer. ​Marvin's refusal to sell his ticket can be explained by A. his inclusion of the sunk costs of the ticket in his decision. B. the endowment effect in which Marvin is not considering the nonmonetary opportunity cost of the ticket. C. his unrealistic view of his future behavior. D. his failure to ignore the sunk costs of the ticket.

the endowment effect in which Marvin is not considering the nonmonetary opportunity cost of the ticket.

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

the enjoyment or satisfaction people receive from consuming goods and services.

What is path​ dependence? Path dependence is where A. the technology that was developed most recently has advantages over older technologies. B. the product endorsed by the most celebrities has an advantage over products endorsed by fewer celebrities. C. the technology that was first available has advantages over better technologies that were developed later. D. the product with the lowest endowment effect has an advantage over the products with greater endowment effects. E. the product with the lowest switching costs has an advantage over products with higher switching costs.

the technology that was first available has advantages over better technologies that were developed later.

In​ 2012, the San Francisco Giants Major League Baseball team signed pitcher Matt Cain to a contract that paid him a salary of​ $20 million per year from 2013 through 2017. The annual salaries were all guaranteed and the Giants had to pay Cain whether he performed well or​ not, or even if the Giants were to release him so that he no longer played for the team. During​ 2016, Cain pitched ineffectively and at the beginning of the 2017 season it was uncertain whether the Giants would keep him as a regular player. Giants General Manager Bobby Evans was quoted as saying that in the decision on​ Cain, his salary​ wasn't a​ factor: "It's really not about the money at this​ point." ​Source: Daniel​ Mano, "Bobby Evans Explains Matt​ Cain's Uncertain Status with​ Giants," mercurynews.com, March​ 14, 2017. Is​ Evans's analysis​ correct? Should the salary the Giants are paying Cain matter in deciding whether to keep him on the​ team? A. ​Yes, Evans's analysis is correct because​ Cain's salary is a sunk cost. B. ​No, his analysis is incorrect because​ Cain's salary has an opportunity cost. C. ​Yes, his analysis is correct because​ Cain's salary is a monetary cost. D. ​No, Evans's analysis is incorrect because​ Cain's 2017 salary had not yet been paid.

​Yes, Evans's analysis is correct because​ Cain's salary is a sunk cost