Question 1

Economists would refer to the increase in product sales because of celebrity endorsements as being the result of

Accepted Answer

Social influence refers to the way that individuals are influenced by those around them in their choices and behaviors. In this case, celebrity endorsements are a form of social influence that can lead to increased sales of products.

Question 2

Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important.

Accepted Answer

The ultimatum game experiment has shown that both allocators and recipients place importance on fairness. This has been demonstrated through their behavior and decision-making during the game.

Question 3

All of the following products are most likely to have significant network externalities except

Accepted Answer

Cat food is unlikely to have significant network externalities because it is unlikely to be used in a social context where the number of cat food users would directly affect the value of the product. Choice B (cell phones), C (popular board games), and D (fax machines) are more likely to have significant network externalities because they are used in social contexts where the value of the product increases as more people use it.

Question 4

A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today).What is this phenomenon called?

Accepted Answer

This phenomenon is called path dependency, where a certain path or standard is chosen and becomes entrenched over time, making it difficult to change or switch to a new path or standard.

Question 5

For which of the following products is social influence likely to have the greatest impact?

Accepted Answer

Social influence is likely to have the greatest impact on products that involve a social aspect, such as restaurants. People are often influenced by the opinions and recommendations of their friends and family when it comes to food and dining choices. Toothpaste and high-blood pressure medication, on the other hand, are more likely to be influenced by personal preferences and medical advice. Textbooks may also be influenced by peer recommendations, but to a lesser extent than a social product like restaurants.

Question 6

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology.

Accepted Answer

Switching costs refers to the costs incurred by a consumer when he/she decides to switch from one product to another. Once a product becomes established and widely used, network externalities are created which means that the value of the product increases as more people use it. As a result, consumers become reluctant to switch to a new product with better technology due to the high switching costs involved.

Question 7

A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Accepted Answer

A network externality refers to a situation in which the usefulness of a product increases with the number of consumers who use it.

Question 8

In the ultimatum game, allocators usually offer recipients at least a 40 percent share of the money, and recipients almost always reject offers of less than a 10 percent share.Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers?

Accepted Answer

This option does not explain why allocators offer recipients a relatively generous share or why recipients reject meager offers.

Question 9

Jamal, Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant.It is possible that some of the people in line won't be served at all before the restaurant closes.Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines?
a)In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product.Consequently, a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity.
b)Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers.
c)The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits.

Accepted Answer

Option A explains why a popular restaurant may not want to eliminate lines by raising prices too high, but it does not provide a complete explanation as to why they wouldn't raise prices at all. Option C explains why raising prices could be detrimental to a restaurant's profits, but it does not address why the restaurant wouldn't eliminate lines. Option B, on the other hand, explains that firms may keep prices low to maintain customer loyalty and avoid alienating customers, which is a more complete explanation as to why the restaurant wouldn't simply eliminate the lines by raising prices.

Question 10

Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping.A logical reason for this is that the decline in fuel prices

Accepted Answer

The answer of Many airlines have not reduced or eliminated...

Question 11

Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because

Accepted Answer

The answer of Research by Daniel Kahneman, Jack Knetch, and...

Question 12

The iPod is a product without any significant network externalities.

Accepted Answer

The iPod has significant network externalities, as the value of the product increases as more people use it and more accessories and services are developed for it.

Question 13

Why might network externalities result in products that contain inferior technologies?

Accepted Answer

The answer of Why might network externalities result in products...

Question 14

A significant downside to network externalities is that

Accepted Answer

Network externalities create a situation where the value of a product or service is dependent on the number of other users or complementary products in the market. This can result in large switching costs for consumers who want to switch to a different product or service because they may have to invest in new hardware or software, learn new interfaces, or deal with compatibility issues. As a result, consumers may end up using products with inferior technologies just because they are more popular or have more network effects.

Question 15

One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular.

Accepted Answer

Celebrity endorsements create a perception of popularity and desirability, which increases the perceived utility (satisfaction) that consumers derive from the product. They are more likely to believe that the product will meet their needs or improve their status if it is associated with a celebrity they admire.

Question 16

Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products.These economists believe that

Accepted Answer

Economists who do not believe in locking consumers into inferior technology argue that in practice, the benefits of using a superior technology outweigh the costs of switching to it. Therefore, consumers are rational enough to switch to the product with better technology, even if there are some switching costs involved.

Question 17

Economists have used ________ and ________ in experiments designed to determine whether consumers care about fairness when they make decisions.

Accepted Answer

The ultimatum game and dictator game are two common experimental methods used by economists to measure individuals' preferences for fairness. The ultimatum game involves participants being offered a sum of money and having to decide how to divide it with another person under the condition that the other person can reject the offer if they feel it is unfair, resulting in both parties receiving nothing. The dictator game involves one person being given a sum of money and having to decide how much to share with another person, without any threat of rejection. Both games have been used to study people's willingness to punish unfairness or their desire for fairness in economic decision-making.

Question 18

A good is path dependent when

Accepted Answer

Path dependence occurs when the initial choice made sets a course for all future choices, even if a better option becomes available later. This can be seen in technology choices, where an inferior technology may have been chosen initially, resulting in a lock-in effect that makes it difficult to switch to a better technology later.

Question 19

Which of the following is an experiment which tests whether fairness is important in consumer decision making?

Accepted Answer

The ultimatum game is an experiment in which one player (the proposer) is given a sum of money and must offer a portion of it to another player (the responder). The responder can either accept the offer, in which case both players keep their respective shares, or reject it, in which case neither player gets any money. This experiment has been used to study the importance of fairness in decision making, as responders often reject unfair offers even when it means receiving no money at all.

Question 20

Which of the following is used to explain why a consumer's willingness to use Blackberry Messenger (BBM)increases as the number of other people who use Blackberry Messenger increases?

Accepted Answer

Network externalities refers to the phenomenon where the value of a product or service increases with the number of users, as in the case of BBM. As more people use BBM, it becomes a more valuable communication tool and therefore more appealing to potential users.

Quiz 8: Consumer Choice and Behavioral Economics