Suppose a consumer is trying to decide how much to spend on clothing and how much to spend on all other ?(non-clothing?) consumption.
The economic model of consumer behavior predicts that the consumer will
answer
choose the combination of ch clothing and ?non-clothing consumption that makes her as well off as possible from among the combinations of clothing and ?non-clothing items she can afford.
question
Suppose you have a monthly entertainment budget that you use to rent movies and purchase CDs. You currently use your income to rent 5 movies per month at a cost of? $5.00 per movie and to purchase 5 CDs per month at a cost of? $10.00 per CD. Your marginal utility LOADING... from the fifth movie is 10 and your marginal utility from the fifth CD is 16.
Are you maximizing? utility?
You are
What could you do to increase? utility?
You could increase utility by consuming more
movies
and fewer
CDs
.
answer
not maximizing utility because the marginal utility per dollar spent on movies is not equal to the marginal utility per dollar spent on CDs.no
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Suppose ham is an inferior good. How will consumers adjust their buying decisions if the price of ham? changes?
If the price of ham? increases, then consumers will demand
Instead, suppose ham is a normal good.
If the price of ham? increases, then consumers will demand
less
ham due to the income effect and
less
ham due to the substitution effect.
answer
more ham due to the income effect because their purchasing power decreases and less ham due to the substitution effect because the opportunity cost of consuming ham is higher.
question
What role does utility LOADING... play in the economic model of consumer? behavior?
When modeling consumer? behavior, utility
answer
reflects the enjoyment a consumer receives from consuming a particular set of goods and services.
question
What explanations have economists offered for why firms? don't raise prices when doing so would seem to increase? profits?
Firms might not raise prices when doing so might increase profits because
answer
consumers find it unfair for firms to increase prices after an increase in demand
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What affects the desirability of a? product?
Products become more desirable when
answer
use a product because consumers who use the same product may feel more fashionable.
professional athletes use a product because consumers who use the same product may feel closer to famous people.
movie stars use a product because consumers perceive them to be particularly knowledgeable about it.
question
Are consumers only interested in making themselves as well off as possible in a material? sense?
Consumers are
answer
also concerned with fairness as exemplified by al donations to charity.
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What effect does a network externality have on the market for a? product?
If a network externality is present for a? product, then
answer
consumers may be more likely to buy the product because it is more useful.co
question
Consider a form of public consumption LOADING... such as wearing clothes.
An? individual's demand for clothes depends on
answer
theth ? individual's tastes and preferences.
B.
the cost of the clothes.
C.
the popularity of the clothes.
question
Consider the ultimatum game LOADING...?, where an? "allocator" is? given, say, ?$50.00 to decide how to divide with a? "recipient," who then decides whether to accept or reject the? allocation, ultimately determining whether the pair receives the allocation or nothing.
What is the optimal play in the ultimatum? game?
answer
The optimal play in the ultimatum game is for the allocator to propose a division of the money such that the recipient receives ?$
0.01 and the recipient then
accepts
the division. ?(Enter your response as a real number rounded to two decimal? places.)
When the ultimatum game experiment is carried? out, both allocators and recipients act as if fairness
is
important.
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n recent? years, some economists have begun studying situations in which people do not appear to be making choices that are economically rational.
This new area of economics is called
behavioral economics
.
Why might consumers not act? rationally?
Consumers might
answer
be overly optimistic about their future behavior
question
Behavioral economist Richard Thaler has studied several examples of how businesses make use of inconsistencies in consumer? decision-making.
Which of the following is an example of? this?
An example of businesses taking advantage of inconsistencies in consumer? decision-making is
answer
credit card companies not allowing stores to charge a fee to consumers if they pay with a credit card but allowing stores to provide a discount to consumers if they pay in cash.
question
Behavioral economists LOADING... attribute some consumer behavior to the endowment effect.
Which of the following is an example of the endowment? effect?
An example of the endowment effect is
answer
being unwilling to sell a be car for a price that is greater than the price you would be willing to pay to buy the car if you? didn't already own it.
question
How should sunk costs LOADING... be used in consumer? decision-making?
In consumer? decision-making, sunk costs should
answer
be ignored.
question
What explanation might an economist provide why some people smoke cigarettes when such behavior can lead to health? consequences?
Some people likely smoke cigarettes because
answer
their preferences are not consistent over time
question
Can indifference curves LOADING... ever? cross?
In consumer? theory,
answer
indifference curves cannot cross because this would violate the assumption of transitivity.
question
Miriam consumes tacos and Coke. Suppose the price of a taco is ?$2.30?, the price of a Coke is ?$3.70?, and that Miriam is currently consuming tacos and Coke such that her marginal utility of tacos is 35 and her marginal utility of Coke is 23.
Is Miriam behaving? optimally? If? not, then what should she? do?
answer
Miriam is not maximizingMi ? utility; she should instead consume more tacos and less Coke.
question
Characterize utility maximization.
When consumers maximize? utility,
answer
A.
they consume each good up to the point where the marginal utility per dollar spent is the same for each good.
B.
the marginal rate of substitution equals the price of the good on the horizontal axis divided by the price of the good on the vertical axis at the point of optimization.
C.
the slope of the indifference curve equals the slope of the budget constraint at the point of optimization.
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How is the price elasticity of demand? measured?
The price elasticity of demand is measured as
answer
the percentage change in the quantity demanded divided by the percentage change in price.th
question
Compare the demand for sugar with demand for clothes.
The demand for sugar is likely
answer
more inelastic because sugar tends to represent a smaller fraction of a? consumer's budget.
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Suppose Wendy's hamburgers have many close substitutes available.
If? so, then an increase in the price of Wendy's hamburgers will likely
answer
decrease the quantity of Wendy's hamburgersdemanded by a relatively large amount.
question
MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus2.5 and the price elasticity of demand for all types of breakfast cereals to be minus0.9.
The demand for Post Raisin Bran cereal is
elastic
?, and the demand for all types of breakfast cereals is
inelastic
.
Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast? cereals?
Post Raisin Bran cereal
answer
has more substitutes available
question
Compare the demand for water with the demand for wine.
The demand for wine is likely
answer
relatively more re elastic because wine is a luxury.
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Consider the demand for cigarettes. Suppose the government increases the price of cigarettes by raising cigarette taxes.
How will this affect the demand for cigarettes over? time?
If the price of cigarettes increases?, then the quantity of cigarettes demanded will
answer
decrease?, and this effect will likely become larger? (in absolute? value) over time
question
Consider firms that introduce new? products, such as DVDs in 2001. When firms introduce new? products, how do they typically determine the price elasticity of demand for those? products?
Firms with new products often
answer
estimate price elasticity of demand by experimenting with different prices.es
question
What information must economists have to estimate the price elasticity of? demand?
To estimate the price elasticity of? demand, economists need to know
answer
the demand curve for a product.th
question
Economist X. M. Gao and two colleagues have estimated that the? cross-price elasticity of demand between beer and spirits is 0.15.
If? so, then beer and spirits are
substitutes
.
Gao and colleagues have estimated that the? cross-price elasticity of demand between beer and wine is 0.31.
If the price of wine increases by 10? percent, then the quantity of beer demanded will
increase
by
3.1 percent. ?(Enter your response rounded to one decimal? place.)
In? addition, Gao and colleagues have estimated the income elasticity of demand for beer to be minus0.09.
If? so, then beer is
A.
a normal good that is a luxury.
B.
an inferior good.
Your answer is correct.C.
a normal good that may be a luxury or a necessity.
D.
a luxury that may be a normal good or an inferior good.
E.
a normal good that is a necessity.
answer
an inferior good.
question
Between 1950 and? 2006, the price of wheat fell dramatically from? $15.81 per bushel to? $3.40 per bushel.
Suppose between 1950 and? 2006, the supply of wheat increased substantially due to increases in? productivity, shifting the wheat supply curve to the right.
With this supply? shift, the amount by which the price of wheat falls will be larger the more
inelastic
the demand for wheat.
In? addition, assume that between 1950 and 2006 the income of the average American increased substantially and that wheat is a normal good.
With this increase in? income,
answer
the amount by which the price of wheat rises will be smaller the lower the income elasticity of wheat.th
question
What is the impact of an increase in worker productivity when demand is relatively more? elastic?
answer
An increase in sales revenue received by the firm.An
question
Which of the following is a primary determinant of the price elasticity of supply LOADING...??
The price elasticity of supply is affected by
answer
the passage of time. -
increasingly more elastic over a LONGER period of time
question
Over the past 30? years, the price of oil has been relatively? unstable, fluctuating between? $11.00 and well over? $100 per barrel.
Which of the following potentially contributes to? oil-price instability?
Oil prices are relatively unstable because
answer
the supply of oil is inelastic.th
question
Suppose a professional basketball game is to be played at a suburban ?arena, which increases demand for parking on the night of the game.
If the suburban area has the ability to create additional parking during periods of peak? demand, then
answer
the supply of parking will be more elastic and the price of parking will increase by a relatively small amount the night of the game.
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