Question 1

The observation that people tend to value something more highly when they own it than when they don't is called the

Accepted Answer

The observation that people tend to value something more highly when they own it than when they don't is called the endowment effect. This effect can lead to individuals valuing their own possessions higher than external observers might, and can create difficulties in negotiations and decision-making.

Question 2

What is behavioral economics?

Accepted Answer

Behavioral economics is the study of situations in which people act in ways that are not economically rational. It combines insights from psychology, sociology, neuroscience, and other fields to explore how people's decision-making processes are influenced by factors such as emotions, social norms, cognitive biases, and limited attention. This approach challenges the traditional assumptions of economic models, which assume that individuals always act in their own self-interest and have unlimited cognitive abilities. By understanding how people actually behave in the real world, behavioral economists aim to develop more accurate and effective policies and interventions for promoting individual and societal well-being.

Question 3

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

Accepted Answer

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

Question 4

Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game.He chooses Jasmine to be the allocator and Cassandra to be the recipient.He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra.If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money.If Cassandra decides to reject her allocation, neither student gets to keep the money.How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Accepted Answer

The answer of Professor Parallax chooses two students in his...

Question 5

The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Accepted Answer

The ultimatum game and the dictator game are used to test the extent to which fairness and social norms influence economic decision-making.

Question 6

In a survey of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to

Accepted Answer

Raising prices of essential goods like snow shovels immediately after a snowstorm is often perceived as taking advantage of consumers' urgent needs, which many consider unfair.

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 is a situation in which the usefulness of a product increases with the number of consumers who use it.

Question 8

Explain the concept of network externalities.

Accepted Answer

The answer of Explain the concept of network externalities....

Question 9

Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

Accepted Answer

The statement accurately reflects the results of studies on the ultimatum game, which show that people are willing to reject unequal offers in order to maintain a sense of fairness and reciprocity in their interactions. This suggests that non-monetary factors, such as social norms and moral principles, may play an important role in economic decision-making.

Question 10

A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

Accepted Answer

The answer of A network externality causes firms to sacrifice...

Question 11

In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler found that

Accepted Answer

In their surveys, Kaheman, Knetsch, and Thaler found that most people considered it fair for firms to raise their prices after an increase in costs, but unfair for them to raise their prices due to an increase in demand. This choice is reflected in option D. Options A and C are incorrect, as they do not accurately reflect the findings of the survey. Option B is also incorrect, as the survey showed that not all people considered any increase in price to be unfair.

Question 12

Economists have noted that businesses of a certain type tend to congregate geographically, attracting workers with skills in those fields.This, in turn, lures more firms seeking employees with those skills.Some examples include commercial banking, software development, and the automobile industry.What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Accepted Answer

The answer of Economists have noted that businesses of a...

Question 13

The iPod is a product without any significant network externalities.

Accepted Answer

The iPod has significant network externalities in terms of its compatibility with iTunes software and the online iTunes Store. The more people using iPods and iTunes, the more valuable the overall ecosystem becomes for everyone involved.

Question 14

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result.How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Accepted Answer

The answer of Studies on consumer behavior have found that...

Question 15

Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again.This is evidence that

Accepted Answer

This is evidence that people prioritize treating others fairly, even if it means they are worse off financially. Tips are an optional form of payment that customers are not obligated to provide, yet they often choose to provide them to show appreciation for good service.

Question 16

In an experiment that employed the dictator game, economists at Cornell University gave student "allocators" the option of dividing $20 in only two ways (a)$18 for themselves and $2 to another student, or (b)$10 for themselves and $10 to another student.What was one result from this experiment?

Accepted Answer

The experiment aimed to test the allocators' behavior in making decisions regarding the distribution of money. Option (D) is the best choice because it reflects the result of the experiment, which is that most allocators valued acting fairly. The majority of the allocators chose option (b), despite having the option of taking more money for themselves, which indicates a willingness to share the wealth equally with others.

Question 17

Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine.Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude.He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs.Petty could charge more, but he doesn't see the point.He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices.He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers")concerts that are less than market clearing prices.
Source: Anthony Kuzminski, "Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/

Accepted Answer

The answer of Music writer Anthony Kuzminski praised rock star...

Question 18

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Accepted Answer

The answer of List three reasons why demand for a...

Question 19

Economists have used the ultimatum game and the dictator game in experiments designed to determine

Accepted Answer

The ultimatum game and dictator game are both used to determine whether individuals care about fairness and distributive justice in decision-making. Both games involve one person receiving a sum of money and being given the power to offer a portion of it to another person. In the ultimatum game, the second person can either accept or reject the offer, while in the dictator game, they have no choice but to accept the offer. By studying how people respond to these games, economists can gain insights into how much weight consumers and individuals place on fairness and equality. The other answer choices are incorrect as they are not related to the purpose of these games.

Question 20

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

Accepted Answer

Economists have found that in the ultimatum game experiment, both the allocators and recipients tend to act as if fairness is important. This suggests that fairness may play a significant role in economic decision-making.

Quiz 10: Consumer Choice and Behavioral Economics