Exam 1 (ECO 2023)

Which of the following most closely relates to the idea of opportunity costs? A. trade-offs. B. economic growth. C. technological change. D. capitalism.

A. trade-offs.

Normative statements are concerned primarily with: A. facts and theories. B. what ought to be. C. what is. D. rational choice involving costs and benefits.

C. what is.

Which of the following is a capital resource? A. A computer programmer. B. A corporate bond issued by a computer manufacturer. C. Silicon (sand) used to make computer chips. D. A piece of software used by a firm.

D. A piece of software used by a firm.

The alternative combinations of two goods that a consumer can purchase with a specific money income is shown by: A. a production possibilities curve. B. a demand curve. C. a consumer expenditure line. D. a budget line.

D. a budget line.

Because of "mental accounting:" A. people are better able to process price changes than changes in product sizes. B. people tend to be less risk averse. C. people pay too little on their monthly credit card bills. D. people isolate purchases and sometimes make irrational decisions.

D. people isolate purchases and sometimes make irrational decisions.

Economists contend that most economic decisions are: A. random. B. chaotic. C. spontaneous. D. purposeful.

D. purposeful.

Suppose American winemakers convince the federal government to issue a directive to serve only domestically produced wine at government functions. This would be an example of: A. moral hazard. B. the principal-agent problem. C. logrolling. D. rent-seeking behavior.

D. rent-seeking behavior.

The self-serving bias causes people to act only in their self-interest. True/False

False

Time inconsistency refers to the persistent underestimation of how long a task will take to perform. True/False

False

Anchoring leads people to consider irrelevant information when making decisions. True/False

True

Which of the following normally a progressive tax? a. Sales tax b. Social security tax c. Cigarette tax d. Income tax

d. Income tax

For people that use commitment contracts to motivate achievement of a goal, people have the choice of their penalty money (from failing to reach the goal) to go to either charities they like or charities they hate (anti-charities). From a behavioral economics perspective: A. designating an anti-charity should be more effective because loss aversion will provide additional motivation. B. designating a charity (versus an anti-charity) should be more effective because it avoids all potential for loss. C. it shouldn't matter whether one designates a charity or an anti-charity. D. self-interest biases generally keep people from choosing the anti-charity.

A. designating an anti-charity should be more effective because loss aversion will provide additional motivation.

The diamond-water paradox arises because: A. essential goods may be cheap while nonessential goods may be expensive. B. the marginal utility of certain products increases, rather than diminishes. C. essential goods are always higher priced than nonessential goods. D. we sometimes fail to use money as a standard of value.

A. essential goods may be cheap while nonessential goods may be expensive.

According to behavioral economists, precommitments: A. help people overcome their self-control problems caused by time inconsistency. B. do not fundamentally alter decisions because they do not change the benefits or costs of a particular action. C. end up being more costly as people regularly violate them and incur penalties. D. overcome cognitive biases introduced by brain System 2.

A. help people overcome their self-control problems caused by time inconsistency.

A central focus of prospect theory is: A. how people deal with "bads," as well as how they deal with "goods." B. optimizing precious metal discovery and extraction. C. maximizing returns from investment portfolios. D. how people make rational decisions despite having incomplete information.

A. how people deal with "bads," as well as how they deal with "goods."

When economists say that people act rationally in their self-interest, they mean that individuals: A. look for and pursue opportunities to increase their utility. B. generally disregard the interests of others. C. are mainly creatures of habit. D. are usually impulsive and unpredictable.

A. look for and pursue opportunities to increase their utility.

Money is not an economic resource because: A. money, as such, does not produce anything. B. idle money balances do not earn interest income. C. it is not scarce. D. money is not a free gift of nature.

A. money, as such, does not produce anything.

Joe sold gold coins for $1,000 that he bought a year ago for $1,000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of: A. opportunity costs. B. marginal benefits that exceed marginal costs. C. imperfect information. D. normative economics.

A. opportunity costs.

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: A. overconfidence effect. B. self-serving bias. C. confirmation bias. D. hindsight bias.

A. overconfidence effect.

Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as: A. rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants. B. greedy because he is asking for a high wage that some of his neighbors can't afford to pay. C. selfish because he is asking for a wage that is higher than others might charge. D. irrational because some neighbors refused his offer.

A. rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants.

Utility refers to the: A. satisfaction that a consumer derives from a good or service. B. rate of decline in a product demand curve. C. relative scarcity of a product. D. usefulness of a product.

A. satisfaction that a consumer derives from a good or service.

An increase in money income: A. shifts the consumer's budget line to the right. B. shifts the consumer's budget line to the left. C. increases the slope of the budget line. D. has no effect on the budget line.

A. shifts the consumer's budget line to the right.

"Nudges" refer to: A. subtle changes in policies or practices that result in large behavioral changes. B. legal changes made without much publicity that require significant changes in behavior. C. coercion by governmental authorities. D. changes in endowments that significantly alter behavior.

A. subtle changes in policies or practices that result in large behavioral changes.

A progressive tax is such that: A. tax rates are higher the greater one's income. B. the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the poor. C. entrepreneurial income is exempt from taxation. D. the revenues it yields are spent on transfer payments.

A. tax rates are higher the greater one's income.

Opportunity costs exist because: A. the decision to engage in one activity means forgoing some other activity. B. wants are scarce relative to resources. C. households and businesses make rational decisions. D. most decisions do not involve sacrifices or trade-offs.

A. the decision to engage in one activity means forgoing some other activity.

Because gun violence is portrayed frequently on television and in movies, people mistakenly assign too high of a probability that they will fall victim to gun violence, and too low of a probability to more likely but less publicized events. This phenomenon illustrates: A. the effect of the availability heuristic. B. that people suffer from hindsight bias. C. that events are poorly framed by the media. D. the self-serving bias at work.

A. the effect of the availability heuristic.

The economizing problem is: A. the need to make choices because economic wants exceed economic means. B. how to distribute resources equally among all members of society. C. that people's means often exceed their wants. D. that people do not know how to rationally allocate resources.

A. the need to make choices because economic wants exceed economic means.

Which of the following do economists consider to be capital? A. A pair of stockings. B. A construction crane. C. A savings account. D. A share of IBM stock.

B. A construction crane.

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities? A. Overconfidence effect. B. Availability heuristic. C. Self-serving bias. D. Confirmation bias.

B. Availability heuristic.

Suppose that Dairy Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving). According to prospect theory, how should Dairy Barn promote its "low fat" sour cream? A. It should make no mention of fat content, either in absolute terms or relative to its regular sour cream. B. It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream. C. It should advertise that the "low fat" sour cream has only 5 grams of fat per serving. D. It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.

B. It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.

A consumer is maximizing her utility with a particular money income when: A. the total utility derived from each product consumed is the same. B. MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn. C. MUa = MUb = MUc = . . . = MUn. D. Pa = Pb = Pc = . . . = Pn.

B. MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

Which of the following individuals least likely suffers from myopia? A. Marilyn, who struggles to lose weight because she regularly cheats on her diet. B. Myrna, who lived through the Great Depression and tends to spend frugally and save most of her money. C. Malcolm, who currently spends all his income and saves nothing for retirement. D. Marvin, who regularly sleeps in and is constantly late for work, much to the chagrin of his boss.

B. Myrna, who lived through the Great Depression and tends to spend frugally and save most of her money.

Regulatory capture often occurs because of which of the following? A. Government officials want stronger control over industry regulation. B. Nearly everyone with expertise works in the regulated industry. C. Patent law allows firms to gain monopoly power easily and therefore control a market. D. Consumer groups are effective at lobbying the government for industry regulation.

B. Nearly everyone with expertise works in the regulated industry.

Which of the following is a labor resource? A. A computer programmer. B. A computer. C. Silicon (sand) used to make computer chips. D. A piece of software used by a firm.

A. A computer programmer.

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process? A. A majority of decisions are not made according to the neoclassical assumption of rational behavior. B. Most decisions involve careful calculation of costs and benefits. C. Even though most decisions are irrational, the neoclassical model still accurately predicts outcomes. D. System 1 is best at making optimal decisions.

A. A majority of decisions are not made according to the neoclassical assumption of rational behavior.

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information we can conclude that: A. Alex may have to lower the price to convince Kara to buy a second slice. B. Kara will not eat a second slice, even if it is given to her at no charge. C. Kara will definitely want to buy a second slice of pizza. D. even if Kara buys a second slice, she will not buy a third slice.

A. Alex may have to lower the price to convince Kara to buy a second slice.

Alex was willing to pay $50 for the new World Cup soccer ball. When he received it as a gift, he was willing to sell it, but for no less than $80. According to behavioral economists: A. Alex's behavior is consistent with the endowment effect. B. Alex's behavior is irrational because of inconsistent anchoring. C. Alex should sell the ball if he's offered any amount over $50. D. Alex's behavior is irrational because his frame has changed.

A. Alex's behavior is consistent with the endowment effect.

Carlos and Darla are representative individuals playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game by behavioral economists, about a third of the time we would expect: A. Carlos to keep all of the money for himself. B. Carlos to give all of the money to Darla. C. Carlos to split the money evenly with Darla. D. Carlos to split the money, keeping a little more than half for himself.

A. Carlos to keep all of the money for himself.

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics? A. Daniel Kahneman. B. Richard Thaler. C. John Wannamaker. D. Richard Easterlin.

A. Daniel Kahneman.

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics) approach? A. Distributing online coupons. B. Providing discounts for buying in bulk. C. Positioning frequently purchased items at the back of the store. D. Offering price matching with other stores.

A. Distributing online coupons.

Edgar and Felicity are players in an ultimatum game for $100, where Felicity is the proposer and Edgar is the responder. Suppose that Felicity proposes that she receive $95, while Edgar receives only $5. How would behavioral economists expect Edgar to respond? A. Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it. B. Edgar will accept the $5, as rejecting it would be economically irrational. C. Edgar will suggest a counteroffer that he would accept. D. Edgar will accept the offer if he is thinking with brain System 1 but reject it if thinking with brain System 2.

A. Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it.

Which of the following is the best example of a precommitment used to overcome time inconsistency. A. Finding a running partner and setting a regular schedule of when you will run together. B. Deciding to save a percentage of each month's paycheck. C. Signing up for a free trial membership at the local gym. D. Buying an alarm clock.

A. Finding a running partner and setting a regular schedule of when you will run together.

Which of the following best describes the relationship between market transactions and the ultimatum and dictator games? A. Market transactions operate more like the ultimatum game than the dictator game. B. Market transactions operate more like the dictator game than the ultimatum game. C. The ultimatum and dictator games both provide good representations of how market transactions work. D. Neither the ultimatum game nor the dictator game bears much similarity to market transactions.

A. Market transactions operate more like the ultimatum game than the dictator game.

According to behavioral economics, placement of goods in retail stores is often designed to accomplish which of the following? A. Maximize impulse buying by consumers. B. Minimize shelving costs. C. Maximize convenience for customers. D. Maximize the amount of product the store can display.

A. Maximize impulse buying by consumers.

Which of the following statements is true? A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole. B. Macroeconomics focuses on specific decision-making units of the economy; microeconomics examines the economy as a whole. C. Every topic in economics is either a microeconomic or a macroeconomic issue; a topic cannot be both. D. Topics in microeconomics have public policy implications; topics in macroeconomics do not.

A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.

Which of the following is not considered by economists to be an economic resource? A. Money. B. Factory workers. C. Computers at a retail store. D. A forest.

A. Money.

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

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

In developing prospect theory, which of the following did behavioral economists not discover about people's reaction to goods and bads? A. People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally. B. People are generally loss averse, feeling losses more intensely than gains. C. People judge good and bad outcomes relative to the status quo. D. People experience both diminishing marginal utility from gains and diminishing marginal disutility from losses.

A. People feel equivalent losses and gains in equal measure, supporting the assumption that consumers behave rationally.

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? A. People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction. B. Consumers are more tolerant of diminished quality because diminishing marginal utility causes people to get rid of goods sooner than in the past. C. Firms are myopic in their decision making, with little regard for future profitability. D. The availability heuristic will cause people to buy whatever is offered, regardless of the quality.

A. People have an aversion to losses, and consumers are more likely to feel the loss of a price increase than a quality reduction.

Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists? A. People have preferences that are unstable and vary by context. B. People are almost entirely self-interested in their behavior. C. People plan out decisions well and possess lots of willpower. D. People eagerly and accurately calculate the benefits and costs of their decisions.

A. People have preferences that are unstable and vary by context.

Regulatory capture is said to have occurred when which of the following is true? A. Rules and enforcement in an industry are heavily influenced by the industry being regulated. B. One firm controls an entire market, having captured customers away from other firms. C. Government imposes excessive regulations in an industry, resulting in inefficiencies. D. Consumers make all the rules for an industry, forcing firms into inefficient production methods.

A. Rules and enforcement in an industry are heavily influenced by the industry being regulated.

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics? A. That the recognition heuristic will overcome any negative emotional associations. B. That the recognition heuristic will prevent people from incorporating negative information into their decision-making process. C. That framing effects will diminish the negative emotions associated with most bad publicity. D. That self-serving biases will make people "look the other way" and ignore bad publicity.

A. That the recognition heuristic will overcome any negative emotional associations.

Which of the following is a significant difference in the behavior of the dictator/proposer between the dictator game and the ultimatum game? A. The dictator/proposer tends to be more generous in the ultimatum game. B. The dictator/proposer tends to be more generous in the dictator game. C. There is no systematic difference in the generosity of the dictator/proposer between the two games. D. Dictators/proposers demonstrate more emotion when playing the dictator game.

A. The dictator/proposer tends to be more generous in the ultimatum game.

Eric tries to eat more healthfully by eliminating cookies, donuts, and similar snacks from his diet. Every day at work, however, co-workers bring in these treats and Eric succumbs to temptation. Which of the following concepts would behavioral economists use to explain Eric's self-control problem? A. Time inconsistency. B. Availability heuristic. C. Self-serving bias. D. System 2 processes dominating decision making.

A. Time inconsistency.

What are the two categories of cognitive biases identified by behavioral economists? A. Unevolved capacity for solving modern problems and faulty heuristics. B. Bad information and lack of impulse control. C. Lack of intellect and mental disorders. D. Inability to reason and inability to delay gratification.

A. Unevolved capacity for solving modern problems and faulty heuristics.

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam. When he cracked open his book and notes the night before the exam, he realized he should've started studying earlier. According to behavioral economics, Dan's error was caused primarily by: A. a planning fallacy. B. an overconfidence effect. C. framing effects. D. hindsight bias.

A. a planning fallacy.

Results of the ultimatum game: A. affirm the metaphor of the invisible hand. B. contradict the metaphor of the invisible hand. C. demonstrate that markets are generally inefficient. D. suggest that governments are unnecessary.

A. affirm the metaphor of the invisible hand.

The basic purpose of the other-things-equal assumption is to: A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z. B. allow one to focus upon micro variables by ignoring macro variables. C. allow one to focus upon macro variables by ignoring micro variables. D. determine whether X causes Y or vice versa.

A. allow one to reason about the relationship between variables X and Y without the intrusion of variable Z.

Neoclassical economics and behavioral economics: A. are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own. B. are diametrically opposed to each other. C. generally address different issues in economics, and therefore rarely intersect on the same topic. D. both start from the premise that people are fundamentally rational in their decision making.

A. are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own.

A person should consume more of something when its marginal: A. benefit exceeds its marginal cost. B. cost exceeds its marginal benefit. C. cost equals its marginal benefit. D. benefit is still better.

A. benefit exceeds its marginal cost.

Last Word) Theft and burglary: A. can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits. B. are examples of irrational behavior. C. are applications of the law of increasing opportunity cost. D. are less economically rational than crimes of passion and violence.

A. can be viewed as attempts to maximize utility, given certain marginal costs and marginal benefits.

Anchoring: A. can influence decision making with irrelevant information. B. explains why, for example, hamburger will be advertised as 80% lean rather than 20% fat. C. causes losses to be felt more intensely than gains. D. explains why, for example, firms prefer to reduce package sizes to raising prices.

A. can influence decision making with irrelevant information.

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: A. carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. B. eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. C. give away most of her sugary treats in an effort to resist temptation. D. determine her fair share of the sugary treats available, and only eat those.

A. carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat

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

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

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

A. contradicts the view that people are narrowly self-interested.

According to behavioral economists, people's preferences toward a particular outcome: A. depend heavily on the contextual information that defines whether that outcome is a gain or a loss. B. are context independent because the same state of being is created regardless of one's previous circumstances. C. differ across people but are fixed for any given individual. D. depend primarily on genetics rather than environmental or contextual forces.

A. depend heavily on the contextual information that defines whether that outcome is a gain or a loss.

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 behavioral economist would expect Susie to: A. carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat. B. eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future. C. give away most of her sugary treats in an effort to resist temptation. D. compute the caloric intake and calculate how many hours of exercise would be needed to burn off the calories from each treat.

B. eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future.

Behavioral economists believe that the human brain is generally: A. efficient and accurate. B. efficient but prone to errors. C. inefficient but accurate. D. inefficient and prone to errors.

B. efficient but prone to errors.

Deregulation: A. tends to improve outcomes in industries generating substantial negative externalities. B. eliminates regulatory capture and can improve outcomes by increasing competition. C. is most appropriate to undertake by government agencies responsible for human safety, financial regulation, and environmental protection. D. always generates greater economic efficiency.

B. eliminates regulatory capture and can improve outcomes by increasing competition.

Participation in company retirement savings programs has increased dramatically because: A. participation was required by the company. B. enrollment in these programs was set as the default option and workers had to request to be unenrolled. C. not being enrolled in these programs was set as the default options, and people's aversion to being told what to do prompted many to request enrollment. D. endowment effects encourage greater saving.

B. enrollment in these programs was set as the default option and workers had to request to be unenrolled.

Selfishness is: A. exhibited more strongly in the ultimatum game than in the dictator game. B. exhibited more strongly in the dictator game than in the ultimatum game. C. exhibited equally strongly in both the ultimatum and dictator games. D. rarely exhibited in either the ultimatum or dictator games.

B. exhibited more strongly in the dictator game than in the ultimatum game.

Al regularly pays the full amount of taxes due, even though he could easily hide some of his income and reduce his tax burden, with no risk of getting caught. According to behavioral economics: A. Al is not economically rational in his behavior. B. fairness and other moral considerations cause Al to act contrary to his pure self-interest. C. Al is more ethical than the majority of the population. D. heuristics are causing Al to act honorably, not a conscious or deliberative thought process.

B. fairness and other moral considerations cause Al to act contrary to his pure self-interest.

Bucky and Satchel are offered identical jobs, each paying $80,000 per year. According to behavioral economics: A. they should feel equally good about the job offer. B. how each will feel about the job offer will depend on their current positions and incomes. C. if Bucky's current income is $60,000 per year, and Satchel's is $70,000 per year, we would expect Bucky to receive twice as much additional utility from taking the job as Satchel would. D. if the jobs will not change their income, they are more likely to switch jobs than remain with the status quo.

B. how each will feel about the job offer will depend on their current positions and incomes.

You should decide to go to a movie: A. if the marginal cost of the movie exceeds its marginal benefit. B. if the marginal benefit of the movie exceeds its marginal cost. C. if your income will allow you to buy a ticket. D. because movies are enjoyable.

B. if the marginal benefit of the movie exceeds its marginal cost.

Because neoclassical economists assume that people are rational decision makers, they: A. are able to make better predictions about economic behaviors and outcomes. B. ignore the mental processes by which these decisions are made. C. believe that people never make suboptimal decisions. D. believe it is best to limit the number of options people have available.

B. ignore the mental processes by which these decisions are made.

The utility of a good or service: A. is synonymous with usefulness. B. is the satisfaction or pleasure one gets from consuming it. C. is easy to quantify. D. rarely varies from person to person.

B. is the satisfaction or pleasure one gets from consuming it.

The four factors of production are: A. land, labor, capital, and money. B. land, labor, capital, and entrepreneurial ability. C. labor, capital, technology, and entrepreneurial ability. D. labor, capital, entrepreneurial ability, and money.

B. land, labor, capital, and entrepreneurial ability.

The threat of rejection in market transactions: A. leads to higher prices as sellers try to cover possible losses. B. leads to better products and lower prices for consumers. C. leads to less cooperation between buyers and sellers. D. does all of these.

B. leads to better products and lower prices for consumers.

The economizing problem is one of deciding how to make the best use of: A. virtually unlimited resources to satisfy virtually unlimited wants. B. limited resources to satisfy virtually unlimited wants. C. unlimited resources to satisfy limited wants. D. limited resources to satisfy limited wants.

B. limited resources to satisfy virtually unlimited wants.

To maximize utility, a consumer should allocate money income so that the: A. elasticity of demand on all products purchased is the same. B. marginal utility obtained from the last dollar spent on each product is the same. C. total utility derived from each product consumed is the same. D. marginal utility of the last unit of each product consumed is the same.

B. marginal utility obtained from the last dollar spent on each product is the same.

(Consider This) Unlike newspaper dispensing devices, soft drink dispensing machines do not permit people to take more than one can or bottle with each payment. The reason is that the: A. opportunity cost of additional cans or bottles of a soft drink increase very rapidly. B. marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later. C. marginal utility of extra soft drink cans or bottles declines quite rapidly. D. opportunity cost of additional cans or bottles of soft drink increases very slowly.

B. marginal utility of extra soft drink cans or bottles declines slowly, particularly because they are storable and can be consumed later.

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as: A. framing. B. mental accounting. C. anchoring. D. the endowment effect.

B. mental accounting.

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase: A. more of A and less of B. B. more of B and less of A. C. more of both A and B. D. less of both A and B.

B. more of B and less of A.

Most economists contend that: A. noncash gifts are more efficient than cash gifts. B. noncash gifts are less efficient than cash gifts. C. noncash and cash gifts are equally efficient. D. government can assess consumer preferences better than can consumers themselves.

B. noncash gifts are less efficient than cash gifts.

When Lucian starts his new job, he is given the option to contribute to his retirement fund, which the company will match up to 5 percent of his base salary. Lucian knows he can afford to contribute to his retirement fund; he only needs to file a form to activate the contributions and matching. According to prospect theory, if Lucian is typical in his behavior, we would expect him to: A. take full advantage of the matching contribution because that would maximize his financial well-being. B. not file the form to start the contribution and match. C. negotiate with his boss for a higher match in order to increase his returns. D. only start contributions if the retirement portfolio is heavily weighted in high-return assets.

B. not file the form to start the contribution and match.

Public choice economists contend public bureaucracies are inefficient primarily because: A. the value of public goods is more easily measured than is the value of private goods. B. of the absence of competitive market pressures. C. public sector workers are more security-conscious than are private sector workers. D. relatively low pay in government attracts workers of lesser quality.

B. of the absence of competitive market pressures.

Suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. This example illustrates: A. distorted priorities. B. opportunity costs. C. increasing opportunity costs. D. productive efficiency.

B. opportunity costs.

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

B. people's difficulty in conceptualizing the future.

The scarcity problem: A. persists only because countries have failed to achieve continuous full employment. B. persists because economic wants exceed available productive resources. C. has been solved in all industrialized nations. D. has been eliminated in affluent societies such as the United States and Canada.

B. persists because economic wants exceed available productive resources.

Noncash gifts: A. increase the utility of recipients by introducing them to products they have not consumed before. B. reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences. C. entail as much utility as do cash gifts. D. increase the utility of recipients because many people are uncertain of their own preferences.

B. reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences.

The pursuit through government of a "transfer of wealth" at someone else's expense refers to: A. logrolling. B. rent-seeking behavior. C. the paradox of voting. D. the median-voter model.

B. rent-seeking behavior.

When the ultimatum game is played for larger rather than smaller amounts of money, behavioral economists have found that when the proposed splits are very uneven: A. responders are much more likely to accept the offer because of the amount of money involved. B. responders are no more likely to accept the offer if they consider the split to be unfair. C. responders are much less likely to accept the offer because their sense of unfairness is heightened with larger amounts of money. D. responders will accept offers at a higher rate but will exact greater emotional penalties on the proposer.

B. responders are no more likely to accept the offer if they consider the split to be unfair.

Linda committed a traffic violation that resulted in an accident. She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident. According to prospect theory, A. she will suffer as much disutility from paying for the accident damage as she does from paying the fine. B. she will suffer less disutility from paying for the accident damage than from paying the fine. C. she will suffer more disutility from paying for the accident damage than from paying the fine. D. she will feel less disutility from paying $1,000 than she would receive positive utility from receiving $1,000.

B. she will suffer less disutility from paying for the accident damage than from paying the fine.

Total utility may be determined by: A. multiplying the marginal utility of the last unit consumed by the number of units consumed. B. summing the marginal utilities of each unit consumed. C. multiplying the marginal utility of the last unit consumed by product price. D. multiplying the marginal utility of the first unit consumed by the number of units consumed.

B. summing the marginal utilities of each unit consumed.

The diamond-water paradox occurs because: A. the price of a product is related to its total utility, not its marginal utility. B. the price of a product is related to its marginal utility, not its total utility. C. water is, in fact, very scarce in certain regions of the world. D. diamonds are more useful than water.

B. the price of a product is related to its marginal utility, not its total utility.

Essential" water is cheaper than "nonessential" diamonds because: A. new industrial uses for diamonds have been discovered. B. the supply of water is great relative to demand and the supply of diamonds is small relative to demand. C. although the total utility of diamonds is greater, their marginal utility is small. D. the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

B. the supply of water is great relative to demand and the supply of diamonds is small relative to demand.

The average tax rate is: A. change in taxes/change in taxable income. B. total taxes/total taxable income. C. the sum of the marginal tax rate and the rate of transfer payments. D. the tax on incremental income less the tax on total income.

B. total taxes/total taxable income.

According to behavioral economists, the human brain: A. makes most decisions based on careful calculation of benefits and costs. B. uses evolutionary-developed heuristics to make many decisions. C. only develops heuristics for decision making after the same decision has been made multiple times using a rational framework of comparing benefits and costs. D. employs heuristics in decision making that are slow but generally error-free.

B. uses evolutionary-developed heuristics to make many decisions.

Chronic budget deficits can be attributed to: A. unfunded liabilities. B. voters wanting government programs but not wanting to pay taxes. C. inappropriate monetary policy. D. state budget laws.

B. voters wanting government programs but not wanting to pay taxes.

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this? A. Neoclassical economics. B. Keynesian economics. C. Behavioral economics. D. Classical economics.

C. Behavioral economics.

Brinley says that "gas prices are rising because there aren't enough oil refineries." Katie argues that "gas prices are rising because of the growing demand for gasoline from China and India." We can conclude that: A. Brinley's statement is positive; Katie's statement is normative. B. Brinley's statement is normative; Katie's statement is positive. C. Both statements are positive. D. Both statements are normative.

C. Both statements are positive.

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

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

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics) approach? A. Holding posted prices constant but reducing package sizes. B. Providing discounts for buying in bulk. C. Placing the most frequently purchased items at the back of the store. D. Positioning high-profit kids cereals on the lower shelves of the cereal aisle.

B. Providing discounts for buying in bulk.

Camille is at the candy store with her grandmother, who offers to buy her $6 worth of candy. If lollipops are $1 each and candy bars are $2 each, what combination of candy can Camille's grandmother buy for her? A. Six lollipops and three candy bars. B. Two lollipops and two candy bars. C. Three lollipops and two candy bars. D. One lollipop and three candy bars.

B. Two lollipops and two candy bars.

Suppose an economist says that "other things equal, the lower the price of bananas, the greater the amount of bananas purchased." This statement indicates that: A. the quantity of bananas purchased determines the price of bananas. B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant. C. economists can conduct controlled laboratory experiments. D. one cannot generalize about the relationship between the price of bananas and the quantity purchased.

B. all factors other than the price of bananas (for example, consumer tastes and incomes) are assumed to be constant.

The budget line shows: A. the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods. C. the minimum amount of two goods that a consumer can purchase with a specific money income. D. all possible combinations of two goods that yield the same level of utility to the consumer.

B. all possible combinations of two goods that can be purchased, given money income and the prices of the goods.

The assertion that "there is no free lunch" means that: A. there are always trade-offs between economic goals. B. all production involves the use of scarce resources and thus the sacrifice of alternative goods. C. marginal analysis is used in economic reasoning. D. choices need not be made if behavior is rational.

B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.

According to behavioral economists, self-control problems: A. are a rare aberration from rational decision making. B. are often caused by time inconsistency. C. can be easily overcome by providing decision makers with better information. D. occur frequently but have no impact on the ability of neoclassical models to predict economic outcomes.

B. are often caused by time inconsistency.

The law of diminishing marginal utility states that: A. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed. B. beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer. C. price must be lowered to induce firms to supply more of a product. D. it will take larger and larger amounts of resources beyond some point to produce successive units of a product.

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

Marginal utility is the: A. sensitivity of consumer purchases of a good to changes in the price of that good. B. change in total utility obtained by consuming one more unit of a good. C. change in total utility obtained by consuming another unit of a good divided by the change in the price of that good. D. total utility associated with the consumption of a certain number of units of a good divided by the number of units consumed.

B. change in total utility obtained by consuming one more unit of a good.

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: A. framing effects. B. confirmation bias. C. self-serving bias. D. planning fallacy.

B. confirmation bias.

Kara was out jogging and, despite being tired, decided to run one more mile. Based on her actions, economists would conclude that Kara: A. must be an avid runner. B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile. C. decided that the marginal cost of running one more mile would outweigh the benefit of the additional mile. D. was not very tired, so the marginal cost of the extra mile was very low.

B. decided that the marginal benefit of running one more mile would outweigh the cost of the additional mile.

An increase in the price of product A will: A. increase the marginal utility per dollar spent on A. B. decrease the marginal utility per dollar spent on A. C. not affect the marginal utility per dollar spent on A. D. cause utility-maximizing consumers to buy more of A.

B. decrease the marginal utility per dollar spent on A.

The law of diminishing marginal utility explains why: A. supply curves slope upward. B. demand curves slope downward. C. addicts can never get enough. D. people will only consume their favorite goods and not try new things.

B. demand curves slope downward.

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

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

According to behavioral economics, cognitive biases: A. create errors in decision making, but these errors are random and follow no particular pattern. B. occur but are not prevalent enough to distort the behavioral predictions of neoclassical economics. C. are misunderstandings or misperceptions that cause systematic error. D. are solely the result of faulty heuristics.

C. are misunderstandings or misperceptions that cause systematic error.

Heuristics: A. are rules of thumb that generate decisions that generally maximize net benefits. B. take a long time to develop and are therefore avoided by rational decision makers. C. are shortcuts that save time and energy in decision making. D. always waste mental resources by leading people to suboptimal outcomes.

C. are shortcuts that save time and energy in decision making.

Balin purchases fair trade cocoa out of concern for workers' rights and environmental sustainability. He could purchase cocoa of equal quality at a lower price. Behavioral economists would consider Balin's purchase: A. unusual in that it demonstrates concern for others. B. purely self-interested but motivated by something other than his financial well-being. C. as evidence that Balin is not acting purely in his self-interest. D. a bad decision because it ignores important information that could improve Balin's well-being.

C. as evidence that Balin is not acting purely in his self-interest.

Suppose that Julia receives a $20 gift card for the local coffee shop, where she only buys lattes and muffins. If the price of a latte is $4 and the price of a muffin is $2, then we can conclude that Julia: A. should only buy muffins. B. should only buy lattes. C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods. D. can buy 5 lattes and 10 muffins with her $20 gift card.

C. can buy 5 lattes or 10 muffins if she chooses to buy only one of the two goods.

The marginal tax rate is: A. the difference between the total tax rate and the average tax rate. B. the percentage of total income paid as taxes. C. change in taxes/change in taxable income. D. total taxes/total taxable income.

C. change in taxes/change in taxable income.

According to behavioral economics: A. gains are felt more intensely than losses. B. each successive unit of loss is equal in its marginal disutility. C. each successive unit of loss hurts, but less than the previous unit. D. each successive unit of loss hurts, and more than the previous unit.

C. each successive unit of loss hurts, but less than the previous unit.

According to behavioral economics, advertising works because it: A. provides useful information that improves consumers' ability to make decisions. B. exploits the self-serving bias. C. exploits the recognition heuristic. D. quickly communicates price changes that exploit the law of demand.

C. exploits the recognition heuristic.

Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite dessert. Despite the fact he would enjoy the flavor of the tiramisu the same amount every time, Josh only buys it when others are having dessert, and never buys it if he would be the only one having dessert. Behavioral economists would say that Josh's decision is affected by: A. the availability heuristic. B. confirmation biases. C. framing effects. D. the self-serving bias.

C. framing effects.

The hedonic treadmill refers to a phenomenon where: A. people can't improve their economic well-being because prices increase as fast as wages. B. people can't get out of debt because credit card companies use anchoring to get consumers to carry large balances on their accounts. C. increasing our level of consumption doesn't make us any happier in the long term. D. feelings of loss offset our feelings of gain, leaving us no happier in the long term.

C. increasing our level of consumption doesn't make us any happier in the long term.

The results of running the dictator game experiments thousands of times have revealed to behavioral economists that: A. people's sense of fairness is fairly uniform across the population. B. most people have little concern for others when it comes to financial matters. C. individual feelings about fairness and generosity vary widely across the population. D. most people are willing to give more than they will keep for themselves.

C. individual feelings about fairness and generosity vary widely across the population.

Government officials tend to make: A. better economic decisions than private individuals because of the wealth of information at their disposal. B. better economic decisions than private individuals because of the efficient processes and flexibility built into the government bureaucracy. C. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs. D. inefficient choices because the invisible hand directs them away from the resource allocation where marginal benefits equal marginal costs.

C. inefficient choices because they lack the information necessary to accurately weigh marginal benefits and marginal costs.

Microeconomics: A. is the basis for the "after this, therefore because of this" fallacy. B. is not concerned with details, but only with the overall big picture of the economy. C. is concerned with individual economic units and specific markets. D. describes the aggregate flows of output and income.

C. is concerned with individual economic units and specific markets.

Why do credit card companies typically require small minimum payment amounts on their customers' monthly credit card statements? A. Credit card companies are concerned that their customers will be put in financial distress if required to make higher payments. B. Credit card companies want to promote faster repayment, and customers will be encouraged to pay more each month if they're able to pay well beyond the minimum. C. Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements. D. Credit card companies actually charge the highest minimum payment they are allowed by law to charge.

C. Credit card companies want to increase profits by promoting slower repayment, and actual customer payments will be anchored by the smaller payment requirements.

Which of the following is considered a potential solution to some regulatory capture? A. Bringing industry experts into the regulatory process. B. Creating a standard set of regulations for all industries. C. Deregulation of the industry. D. Government subsidies for firms in the industry.

C. Deregulation of the industry.

The website Stickk.com appeals to what concept from behavioral economics to help people achieve goals? A. Cognitive therapy. B. Availability heuristics. C. Loss aversion. D. Fairness.

C. Loss aversion.

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially: A. MUd < MUc B. MUc/Pc < MUd/Pc C. MUc/Pc > MUd/Pd D. MUd > MUc

C. MUc/Pc > MUd/Pd

Which of the following would not be classified as an economic resource by economists? A. A professional soccer player. B. Water in a town's reservoir. C. Money in a business checking account. D. The manager of the local hamburger restaurant.

C. Money in a business checking account.

According to the piece "Wannamaker's Lament": A. price tags are inefficient signaling mechanisms. B. money-back guarantees are costly to firms because they don't increase sales but do increase costs. C. most marketing efforts have little impact on sales. D. only 50 percent of new consumer products fail within the first year.

C. most marketing efforts have little impact on sales

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is: A. zero. B. positive, but declines rapidly. C. negative. D. positive, but less than the ticket price.

C. negative.

Economists call the pursuit of a transfer of wealth through government at someone else's expense: A. the paradox of voting. B. adverse selection. C. rent-seeking behavior. D. the benefits-received principle.

C. rent-seeking behavior.

A product has utility if it: A. takes more and more resources to produce successive units of it. B. violates the law of demand. C. satisfies consumer wants. D. is useful.

C. satisfies consumer wants.

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

C. status quo bias.

"Time inconsistency" refers to the: A. tendency for policies with high short-run benefits to have high long-run costs. B. fallacy that what is true for the short run must be true for the long run. C. tendency to regularly misjudge in the present what you will do in the future. D. tendency to misjudge how long it will take to accomplish a future task.

C. tendency to regularly misjudge in the present what you will do in the future.

A company has designed an alarm clock that "runs and hides" after going off, forcing the person to get up and find the alarm clock if he or she wants to shut off the alarm. According to behavioral economists: A. it is unlikely to alter people's tendency to shut off the alarm and ultimately oversleep. B. the alarm clock keeps people from hitting the snooze button and taking advantage of the availability heuristic. C. the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time. D. overconfidence effects will discourage use of such devices.

C. the alarm clock serves as a precommitment device, helping the user to stick to the originally planned wake-up time.

Junior collects baseball cards. He owns one Felix Hernandez card that sells in most shops for $15. He is interested in buying a different Felix card that also sells for $15. According to behavioral economics: A. Junior should value the two cards equally and be willing to trade one for the other. B. the availability heuristic will cause Junior to value more highly the card he doesn't have. C. the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have. D. prospect theory says he will buy the second card as both have the potential to appreciate in value.

C. the endowment effect would suggest that Junior would not be willing to trade the card he has for the card he doesn't have.

The average tax rate is: A. equal to the marginal tax rate if the tax is progressive. B. the total tax rate minus the marginal tax rate. C. the ratio of total taxes paid to total taxable income. D. the tax rate that applies to incremental dollars of income.

C. the ratio of total taxes paid to total taxable income.

(Last Word) Most people do not steal because: A. stolen goods are subject to the law of diminishing marginal utility. B. the marginal utilities of stolen goods are negative. C. their marginal costs, including guilt costs, are too high. D. stolen goods can only be sold at deep discounts.

C. their marginal costs, including guilt costs, are too high.

If you receive a gift whose market price is $20, but you consider it to be worth only $10, then: A. there is a $10 or 50 percent value gain. B. there may or may not be a value loss. C. there is a $10 or 50 percent value loss. D. you can be relatively certain the giver was a sibling or other close relative.

C. there is a $10 or 50 percent value loss.

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: A. weighed the costs and benefits and made a rational economic decision to sleep in. B. used System 1 of his brain to formulate his workout plan, but then gave in to System 2 when he chose to sleep in. C. used System 2 of his brain to formulate his workout plan, but then gave in to System 1 when he chose to sleep in. D. is fundamentally lazy and incapable of sticking to a workout plan.

C. used System 2 of his brain to formulate his workout plan, but then gave in to System 1 when he chose to sleep in.

Fairness, according to behavioral economics: A. is too subjective to be considered in the analysis of economic behavior. B. can be objectively standardized across individuals. C. varies from one individual to another but still affects economic behavior in important ways. D. matters to people, but because of self-interest fairness has little effect on their economic decisions.

C. varies from one individual to another but still affects economic behavior in important ways.

Internationally, participation differences in organ donation programs are mostly attributed to: A. cultural views. B. financial compensation for organ donors. C. what default option is set for participation or nonparticipation. D. living standards as measured by per capita GDP.

C. what default option is set for participation or nonparticipation.

According to the concept of framing effects: A. advertising power is limited because of the inability of firms to change consumers' perspectives. B. all people will assign the same utility to a given situation, regardless of their previous status quo. C. whether a new situation is viewed as a gain or a loss depends on one's starting position. D. firms should never raise prices or reduce wages.

C. whether a new situation is viewed as a gain or a loss depends on one's starting position.

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that: A. the two commodities are substitute goods. B. Mrs. Arnold should spend more on pretzels and less on soda. C. Mrs. Arnold should spend more on soda and less on pretzels. D. Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts.

C. Mrs. Arnold should spend more on soda and less on pretzels.

What do neoclassical economics and behavioral economics believe about giving people options? A. Both believe that people make better decisions when they are given a greater set of options. B. Behavioral economics focuses on providing more options; neoclassical economics focuses on helping people make more rational decisions with the options available. C. Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available. D. Both believe that people are better off with fewer options, allowing them to spend more time calculating the benefits and costs of each available option.

C. Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

Which of the following statements is correct? A. Both cash and noncash gift-giving cause value losses. B. Neither cash nor noncash gift-giving causes value losses. C. Noncash gift-giving creates a value loss, but cash gifts do not. D. Cash gifts create a value loss, but noncash gifts do not.

C. Noncash gift-giving creates a value loss, but cash gifts do not.

Neoclassical economists generally believe which of the following about human behavior? A. While individuals attempt to make rational decisions, poor computational skills often lead to systematic errors. B. People care a lot about fairness and are often willing to sacrifice some of their own well-being to treat others fairly. C. When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them. D. When individuals are selfless and act for the good of others, the invisible hand guides the collective behaviors to promote the good of society.

C. When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them.

The term "other things equal" means that: A. the associated statement is normative. B. many variables affect the variable under consideration. C. a number of relevant variables are assumed to be constant. D. when variable X increases so does related variable Y.

C. a number of relevant variables are assumed to be constant.

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

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

Which of the following is a land resource? A. A farmer. B. An oil drilling rig. C. A machine for detecting earthquakes. D. Natural gas.

D. Natural gas.

The political tendency to favor spending priorities with immediate benefits but deferred costs results in: A. chronic budget deficits. B. misdirection of stabilization policy. C. unfunded liabilities. D. all of these.

D. all of these

John's friend Rosika won a major lottery jackpot. Seeing this, and despite the fact that millions don't win and the odds of winning are infinitesimal, John goes out and buys a bunch of lottery tickets despite struggling financially. John's decision to buy the lottery tickets under these circumstances would best be explained by the: A. hindsight bias. B. self-serving bias. C. confirmation bias. D. availability heuristic.

D. availability heuristic.

(Last Word) All of the following would reduce property crime by increasing its "price," except: A. imposing greater penalties for those who are caught and convicted. B. using more sophisticated security systems. C. enhancing the legitimate earnings of potential criminals. D. cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

D. cutting out the middlemen ("fences") by selling stolen goods via Internet auction sites.

Which of the following lists includes only capital resources (and therefore no labor or land resources)? A. An ice arena; a professional hockey player; hockey uniforms. B. The owner of a new startup firm; a chemistry lab; a researcher. C. A hydroelectric dam; water behind the dam; power lines. D. Autos owned by a car rental firm; computers at the car rental agency; the vans that shuttle rental customers to and from the airport.

D. Autos owned by a car rental firm; computers at the car rental agency; the vans that shuttle rental customers to and from the airport.

Which of the following statements best reflects how a behavioral economist views individual decision making? A. Alex makes wrong decisions sometimes, but usually it is only when he has been given bad information. B. Kara carefully calculates and weighs the expected benefits and costs of every option before making a decision. C. Alicia may appear to care about others, but even her seemingly altruistic behaviors are really about furthering her own interests. D. Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

D. Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

Carlos and Darla are playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game, if Carlos is a typical player, behavioral economists would expect: A. Carlos to keep all of the money for himself. B. Carlos to give all of the money to Darla. C. Carlos to split the money evenly with Darla. D. Carlos to split the money, keeping a little more than half for himself.

D. Carlos to split the money, keeping a little more than half for himself.

(Consider This) Newspaper dispensing devices seemingly "trust" people to take only a single paper, but the devices actually rely on the law of: A. supply. B. increasing opportunity costs. C. demand. D. diminishing marginal utility.

D. diminishing marginal utility.

Which of the following is the best example of a System 2 decision and action? A. Marty learns that his usual driving route to work will have significant delays due to construction but forgets and goes that way anyway. B. Doug eats a whole plate of nachos despite the fact it compromises his carefully planned diet. C. Bruce "goes with his gut" when choosing between two kinds of motorcycles to purchase. D. Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad.

D. Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad.

Which of the following would be the best example of regulatory capture? A. Starbucks buys up all the available supplies of coffee beans. B. Nike executives influence the rules for track and field events. C. Federal law makers write and pass legislation that protects domestic companies from foreign competition. D. Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

D. Executives from the Ford, General Motors, and Chrysler companies write the rules regulating automobile safety and fuel requirements.

According to the piece "Wannamaker's Lament," how have firms responded to the evidence that most advertising campaigns have little impact on sales? A. Firms have substantially cut their advertising budgets to focus more on product quality. B. Firms have substantially increased their advertising budgets in order to hit the spending threshold necessary to impact sales. C. Firms have substantially cut their advertising budgets to focus more on new product development. D. Firms have conducted a lot of simple experiments to determine what might increase sales.

D. Firms have conducted a lot of simple experiments to determine what might increase sales.

Which of the following impacts would economists expect to result from chronic budget deficits? A. Greater economic efficiency resulting from the abundance of public goods produced. B. Permanently high levels of output and continued economic growth. C. Greater political control over monetary policy. D. Government control of an inefficiently large share of the economy's resources.

D. Government control of an inefficiently large share of the economy's resources.

Which of the following is a key difference between the economic activities of government and those of private firms? A. Private firms face the constraint of scarcity; government does not. B. Government focuses primarily on equity; private firms focus only on efficiency. C. Private economic activities create externalities; government activities do not. D. Government has the legal right to force people to do things; private firms do not.

D. Government has the legal right to force people to do things; private firms do not.

Josh will receive a salary of $300,000 next year. According to prospect theory: A. Josh will be happy with that amount regardless of what he has made in the past. B. Josh will only be happy with that salary if everyone else around him makes less than he does. C. Josh will only be happy with that salary if his cost of living has not increased. D. Josh's satisfaction with that salary depends on how much he made in the past.

D. Josh's satisfaction with that salary depends on how much he made in the past.

The threat of rejection in market transactions: A. leads to better products for consumers. B. leads to lower prices for consumers. C. leads to greater cooperation between buyers and sellers. D. does all of these.

D. does all of these.

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum. Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid. Behavioral economists would expect this legislation to: A. substantially increase monthly payments, as consumers make better decisions when they have more information. B. overcome the status quo bias that keeps people paying the minimum. C. cause credit card companies to increase the minimum payments. D. have little effect, as anchoring would keep many people paying the minimum.

D. have little effect, as anchoring would keep many people paying the minimum.

The ultimatum game reveals that the threat of rejection: A. weakens the functioning of the invisible hand. B. reduces cooperation. C. increases selfish behavior. D. helps align private interests with social interests.

D. helps align private interests with social interests.

When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from: A. overconfidence bias. B. self-serving bias. C. framing bias. D. hindsight bias.

D. hindsight bias.

According to economists, gift registries, returning gifts for cash refunds, and "recycling gifts": A. are inefficient because the time spent in these activities is never worth the benefit recipients receive from doing them. B. are equally efficient because the recipient gets exactly what he wants. C. are more efficient than if givers simply gave cash gifts. D. increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

D. increase the efficiency of gift-giving because they allow the recipient to consume goods that provide greater utility and transfer away those goods that are less satisfying.

The fact that most medical care purchases are financed through insurance: A. has no effect on health care consumption because aggregate costs are the same regardless of payment method. B. reduces the amount of health care consumed by raising the price of additional units of care. C. has decreased health care costs and therefore reduced aggregate health care expenditures. D. increases the amount of health care consumed by reducing the price of additional units of care.

D. increases the amount of health care consumed by reducing the price of additional units of care.

A normative statement is one that: A. is based on the law of averages. B. applies only to microeconomics. C. applies only to macroeconomics. D. is based on value judgments.

D. is based on value judgments.

A special-interest issue is one whose passage yields: A. private benefits equal to external benefits. B. large external benefits compared to private benefits. C. small economic losses to a small number of people and large economic losses to a large number of people. D. large economic gains to a small number of people and small economic losses to a large number of people.

D. large economic gains to a small number of people and small economic losses to a large number of people.

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy: A. less of X only if its price rises. B. more of Y only if its price rises. C. more of Y and less of X. D. more of X and less of Y.

D. more of X and less of Y.

A positive statement is one that is: A. derived by induction. B. derived by deduction. C. subjective and is based on a value judgment. D. objective and is based on facts.

D. objective and is based on facts.

Behavioral economists believe that people: A. assess current and future options equally well. B. do not care about fairness, especially if it impairs their ability to get what they want. C. make errors in decision making because of problems such as bad information, but such errors are random and generally not repeated by the same individual. D. often succumb to temptation.

D. often succumb to temptation

Currently (2013) the marginal tax rates of the federal personal income tax: A. are less than corresponding average tax rates. B. rise from 0 to 99 percent. C. fall from 20 to 10 percent. D. rise from 10 to 39.6 percent.

D. rise from 10 to 39.6 percent.

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson: A. has preferences that are at odds with the principle of diminishing marginal utility. B. considers A and B to be complementary goods. C. should buy less A and more B. `D. should buy less B and more A.

D. should buy less B and more A.

According to behavioral economists, someone suffering from myopia is most likely to: A. spend too little on present consumption and save more than is necessary for the future. B. vote only for economic policies that serve his or her short- and long-term interests. C. rely too much on System 2 of the brain. D. spend too much on present consumption and not save enough for the future.

D. spend too much on present consumption and not save enough for the future.

(Consider This) Kara was earning $40,000 per year. When her income rose to $60,000 per year, she enjoyed the higher level of consumption for a while, but eventually she was no more happy than when she earned $40,000 (assume prices didn't change over this time period). Economist Richard Easterlin described this as: A. anchoring. B. the endowment effect. C. irrational economic behavior. D. the hedonic treadmill.

D. the hedonic treadmill.

The marginal tax rate is: A. less than the average tax rate when a tax is progressive. B. calculated by dividing total taxes paid by one's total taxable income. C. the percentage of one's total income that is paid in taxes. D. the percentage of an increment of income that is paid in taxes.

D. the percentage of an increment of income that is paid in taxes.

Last month Laura saw the value of her stock portfolio rise by $20,000. This month she saw the value of her portfolio decline by $20,000. According to behavioral economics: A. the positive utility Laura received from seeing her portfolio value rise was equal to the disutility she felt when its value declined. B. Laura should not invest in stocks unless the utility she receives from gains is at least as great as the disutility she feels from losses. C. the positive utility Laura received from seeing her portfolio value rise was greater than the disutility she felt when its value declined. D. the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

D. the positive utility Laura received from seeing her portfolio value rise was less than the disutility she felt when its value declined.

According to behavioral economists, the human brain frequently employs heuristics because: A. people have consciously trained their brains to do so. B. these shortcuts minimize errors in decision making. C. they produce more optimal outcomes than do rational calculations of benefits and costs. D. they save energy and time in decision making.

D. they save energy and time in decision making.

In economics, the pleasure, happiness, or satisfaction received from a product is called: A. marginal cost. B. rational outcome. C. status fulfillment. D. utility.

D. utility.

The ability of a good or service to satisfy wants is called: A. utility maximization. B. opportunity cost. C. revenue potential. D. utility.

D. utility.

According to behavioral economics, temptation to make harmful decisions can be overcome by presenting decision makers with better information and more options. True/False

False

According to behavioral economists, people tend to put too much weight on the future when they make decisions. True/False

False

According to behavioral economists, self-control problems generally result from poor information. True/False

False

Because of framing effects, a worker will be happy with a 5 percent raise regardless of how much of a raise her fellow employees receive. True/False

False

Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions. True/False

False

Behavioral economics observes that people generally do not act according to their self-interest. True/False

False

Behavioral economics recognizes that people frequently make errors, but these errors generally cancel out in such a way that neoclassical models are sufficient for predicting economic outcomes. True/False

False

Behavioral economists avoid dealing with fairness concerns because the concept is too subjective. True/False

False

Both neoclassical and behavioral economics believe that people are mostly rational in both their decision making and their actions. True/False

False

Hardwired heuristics make it easy to change behavior by simply presenting people with better information. True/False

False

Heuristics generally help people make fewer errors in their decisions. True/False

False

Heuristics generally operate in brain System 2. True/False

False

Heuristics help people make faster, error-free decisions. True/False

False

Isolating transactions from the overall set of consumption options is known as anchoring. True/False

False

Precommitments must impose costs on people to be effective. True/False

False

Prospect theory and the work of behavioral economists confirm that consumers are economically rational. True/False

False

Results of the dictator and ultimatum games reveal that people act in equally self-interested ways, regardless of the context or rules of the game. True/False

False

System 1 is the part of the brain that carefully weighs the benefits and costs when making decisions. True/False

False

The availability heuristic refers to people purchasing what is most easily accessible. True/False

False

Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they play for $10; in the second round they play for $1,000. In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair. If in the second round Gina offers the same split ($800 to Gina, $200 to Henry), research by behavioral economists suggests that Henry will: A. accept the offer because the dollar amount he would forgo by rejecting is substantial. B. counteroffer with a more even split. C. weigh the offer much more carefully because of the dollar amounts involved but ultimately reject the offer. D. exhibit a stronger negative reaction than the first time and ultimately reject the offer.

D. exhibit a stronger negative reaction than the first time and ultimately reject the offer.

Economic resources are also called: A. free gifts of nature. B. consumption goods. C. units of money capital. D. factors of production.

D. factors of production.

A key difference between neoclassical economics and behavioral economics is that in behavioral economics context affects preferences. True/False

True

Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors. True/False

True

Between System 1 and System 2 in the brain, System 1 makes most of the decisions. True/False

True

Dictators/proposers tend act more self-interested when playing the dictator game versus the ultimatum game. True/False

True

Firms would rather shrink package sizes than raise prices because consumers will feel less of a loss from the change in package size. True/False

True

Framing effects may cause the same person to view the same new situation differently depending on whether that new situation makes him or her better or worse off. True/False

True

Heuristics can be exploited to lead people to positive outcomes. True/False

True

Heuristics generally help people make faster decisions. True/False

True

Heuristics generally help people to make decisions faster, but also to make more errors. True/False

True

Neoclassical and behavioral economics are generally complementary. True/False

True

Neoclassical economics and behavioral economics both recognize that people make errors in their decision making. True/False

True

Neoclassical theory suggests that to the extent impulse buying occurs, it is infrequent and does not affect the ability of economic models to predict behavior. True/False

True

People feel losses about 2.5 more intensely than they feel gains. True/False

True

People who engage in mental accounting are more likely to purchase overpriced warranties. True/False

True

Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying. True/False

True

Precommitments are a tool designed to overcome time inconsistency. True/False

True

Recognition heuristics help advertisers gain customers. True/False

True

The dictator and ultimatum games reveal that fairness and concern for others motivate people's behavior. True/False

True

The endowment effect describes when people value a good more when they own it than when they don't. True/False

True

The overconfidence effect exists when people underestimate their chances of being wrong. True/False

True

The presence of framing effects influences how sellers present their products to consumers. True/False

True

The threat of rejection is part of what makes the invisible hand a valid metaphor for how the market system works. True/False

True

Time inconsistency refers to the phenomenon where your present self misjudges what your future self will do. True/False

True

Sales taxes are: a. Progressive taxes b. Regressive taxes c. Not considered a "tax" d. Exactly the same as income taxes

b. Regressive taxes

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? A. $4 and $6 B. $6 and $4 C. $8 and $12 D. $16 and $9

B. $6 and $4

Adam and Becky both recently started new jobs. Both have determined that they should save 10 percent of their monthly income toward retirement. Adam's employer has no program established for payroll deduction, but he could easily set up automatic withdrawals to go into a retirement fund. Becky's employer automatically directs 8 percent of the paycheck into a retirement fund, but the employee can change the percentage deducted. Behavioral economists would expect: A. Adam to save more as he would set up a 10 percent automatic withdrawal while Becky would stay at the default of 8 percent. B. Becky would save more, as both would tend to stay at the defaults provided by their employers. C. them both to save 10 percent eventually, as both had predetermined that that was the optimal amount to save. D. Becky to feel a greater sense of loss by seeing funds automatically withheld each month.

B. Becky would save more, as both would tend to stay at the defaults provided by their employers.

Carlos and Darla are playing the dictator game. Carlos is assigned the role of dictator and given $20 to split between the two of them. Based on previous experiments with this game by behavioral economists, which is the least likely outcome? A. Carlos will keep all of the money for himself. B. Carlos will give all of the money to Darla. C. Carlos will split the money evenly with Darla. D. Carlos will split the money, keeping a little more than half for himself.

B. Carlos will give all of the money to Darla.

According to prospect theory, what strategy will firms typically employ with regard to pricing and packaging of their goods, when faced with rising production costs? A. Firms will increase both package sizes and prices but will increase prices more to communicate to consumers that the product has greater value. B. Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the good. C. Firms will keep package sizes the same but lower prices and attempt to cover the higher costs with greater revenue. D. According to prospect theory, the choice of strategy doesn't matter, as consumers are generally able to recognize price increases regardless of what form they take.

B. Firms will reduce package sizes but keep prices the same, thus increasing the per unit price of the good.

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon? A. Availability heuristics. B. Framing effects. C. Confirmation biases. D. Self-serving biases.

B. Framing effects.

Which of the following is not an implication of hardwired heuristics? A. Getting people to make positive behavioral changes is about putting them in situations where heuristics kick in and lead them to the desired outcome. B. Getting people to make better decisions is simply a matter of providing more information and more options. C. People who know and understand hardwired tendencies of others can take advantage of situations. D. Even when confronted with irrefutable information that a behavior is detrimental, people still may not change what they're doing.

B. Getting people to make better decisions is simply a matter of providing more information and more options.

Ben says that "an increase in the tax on beer will raise its price." Holly argues that "taxes should be increased on beer because college students drink too much." We can conclude that: A. Ben's statement is normative, but Holly's is positive. B. Holly's statement is normative, but Ben's is positive. C. Both statements are normative. D. Both statements are positive.

B. Holly's statement is normative, but Ben's is positive.

Which of the following is a key difference between the dictator game and the ultimatum game? A. The dictator game is played with real money; the ultimatum game is played with hypothetical money. B. In the dictator game, one person has total control over the split; in the ultimatum game, both players have to agree to the split. C. Results of dictator game experiments reveal that people don't care about fairness; results of the ultimatum game indicate that they do care. D. There is no difference between them; they are simply different names for the same game.

B. In the dictator game, one person has total control over the split; in the ultimatum game, both players have to agree to the split.

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? A. Overconfidence effect. B. Confirmation bias. C. Self-serving bias. D. Hindsight bias.

C. Self-serving bias.

Which of the following would represent a systematic error? A. Eddie regularly overspends, but friends and family bail him out so he always ends up with what he wants. B. Ellen paid good money for a used car that is in constant need of repair. C. 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. D. Clark makes regular math errors at work, sometimes coming out with figures too high, other times too low.

C. 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.

Which of the following is a source of government failure? A. The invisible hand. B. The lack of bureaucracy in government. C. The enormous size and scope of government. D. Excessive flexibility.

C. The enormous size and scope of government.

If a rational consumer is in equilibrium, which of the following conditions will hold true? A. MUa = MUb = MUc = . . . = MUn. B. The marginal utility of each good purchased will be zero. C. The marginal utility of the last dollar spent on each good purchased will be the same. D. The total utility obtained from each good purchased will be the same.

C. The marginal utility of the last dollar spent on each good purchased will be the same.

Which of the following is a positive statement? A. A humidity level of 90 percent is too high. B. It is too hot to run outside when the temperature exceeds 80 degrees. C. The temperature is 92 degrees today. D. Summer evenings are nice when it cools off to around 70 degrees.

C. The temperature is 92 degrees today.

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game? A. There is little difference, as fairness considerations lead to similar splits of the money in both games. B. The dictator game tends to result in a more even split of the money. C. The ultimatum game tends to result in a more even split of the money. D. Self-interest is revealed more strongly in the ultimatum game than in the dictator game.

C. The ultimatum game tends to result in a more even split of the money.

Suppose Gina and Henry play two rounds of the ultimatum game. In the first round they play for $10; in the second round they play for $1,000. In the first round Gina suggests an 80/20 split ($8 to Gina, $2 to Henry), but Henry quickly rejects the offer as unfair. Assuming Gina is interested in gaining financially from the experience and that she understands behavioral economics, we would expect her to: A. offer the same relative split ($800/$200), knowing that Henry will accept the offer because the dollar amount he would forgo by rejecting it is substantial. B. offer a more unequal split ($900/$100) in order to gain more for herself and figuring Henry will accept the split because $100 is better than nothing. C. offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer. D. offer Henry more than half of the pot to ensure acceptance of the offer.

C. offer a more equal split ($700/$300) to increase the probability that Henry will accept the offer.

The Latin term "ceteris paribus" means: A. that if event A precedes event B, A has caused B. B. that economics deals with facts, not values. C. other things equal. D. prosperity inevitably follows recession.

C. other things equal.

According to the "endowment effect:" A. people are willing to pay more for things they don't own than they would have to receive to give up something they already have. B. people feel gains and losses with equal intensity. C. people assign higher values to things they own than things they don't. D. the intensity of feelings from gains and losses depends on how much wealth one possesses.

C. people assign higher values to things they own than things they don't.

An income tax is progressive if the: A. absolute amount paid as taxes varies directly with income. B. percentage of income paid as taxes is the same regardless of the size of income. C. percentage of income paid as taxes increases as income increases. D. tax rate varies inversely with income.

C. percentage of income paid as taxes increases as income increases.

For economists, the word "utility" means: A. versatility and flexibility. B. rationality. C. pleasure or satisfaction. D. purposefulness.

C. pleasure or satisfaction.

Marginal utility can be: A. positive, but not negative. B. positive or negative, but not zero. C. positive, negative, or zero. D. decreasing, but not negative.

C. positive, negative, or zero.

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

C. precommitments.

Natural disasters often cause shortages of critical supplies. What outcomes would neoclassical and behavioral economics typically predict from these events? A. Both would expect prices to rise significantly, whether from market forces or from self-interest overwhelming any sense of compassion for others. B. Both would expect sellers to keep prices unchanged, whether to keep customers happy long-term or out of a sense of fairness. C. Neoclassical economists would expect economic chaos and collapse, while behavioral economists would expect everyone to act cooperatively. D. Neoclassical economists would expect prices to rise dramatically as a natural result of the greater scarcity, and behavioral economists would expect prices to increase less or not at all as people try not to take advantage of the situation.

D. Neoclassical economists would expect prices to rise dramatically as a natural result of the greater scarcity, and behavioral economists would expect prices to increase less or not at all as people try not to take advantage of the situation.

Which of the following statements best reflects behavioral economists' views on self-interest versus the interests of others? A. Self-interest dominates human behavior; even seemingly selfless behavior is driven by self-interest. B. Most people care so deeply about others that self-interest is a minor consideration in their decision making. C. The system is most efficient when people focus solely on their self-interest and allow the invisible hand to work out what is best for society. D. People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations.

D. People are always self-interested to a degree, but their behavior is also affected by moral and ethical considerations.

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions? A. People are irrational, are prone to systematic errors, have stable preferences, and care about fairness. B. People are rational, adjust for errors, have stable preferences, and easily resist temptation. C. People care deeply about fairness, eagerly and accurately calculate ways to help others, assess future and present options equally well, and resist temptations in their selflessness. D. People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

D. People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

Which one of the following topics would be of the most interest to a public choice economist? A. The theory of comparative advantage. B. The law of increasing opportunity cost. C. Inflation and unemployment. D. Rent-seeking behavior.

D. Rent-seeking behavior.

Which of the following statements is most accurate about human brain modularity? A. System 1 uses heuristics, system 2 is more calculating, and both are equally important in decision making. B. Both systems regularly use both heuristics and conscious calculations, and both are equally important in decision making. C. System 1 uses heuristics, system 2 is more calculating, and system 2 regularly overcomes system 1's heuristics to make decisions. D. System 1 uses heuristics, system 2 is more calculating, and most decisions are made by system 1.

D. System 1 uses heuristics, system 2 is more calculating, and most decisions are made by system 1.

Which of the following would best explain why regulatory capture is a problem? A. The regulations implemented tend to reduce the profitability of the regulated industry and reduce global competitiveness. B. Regulatory capture unduly increases the size and power of government, increasing costs for taxpayers. C. Individuals implementing the regulations lack expertise about the industry and therefore make poor regulatory choices. D. The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.

D. The regulations implemented serve the private interests of the regulated industry, rather than addressing social interests such as consumer safety and environmental protection.

A tax is regressive if the: a. Average tax rate decreases as income increases b. Marginal tax rate increases as income increases c. Dollar amount paid in taxes increases as income increases d. Tax hurts the rich more than the poor

a. Average tax rate decreases as income increases

"Water is essential to life, but inexpensive to buy." Which best explains this observation? a. Water has a high total utility, but low marginal utility. b. Water has a low total utility, but a high marginal utility c. At the market price the quantity of water supplied is less than the quantity demanded d. The demand for water is very high thus increasing the quantity of water supplied

a. Water has a high total utility, but low marginal utility