Question 1

What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good,where the income effect is larger than its substitution effect?

Accepted Answer

The answer of What did economists Robert Jensen and Nolan...

Question 2

Consider a good whose consumption takes place publicly.Your decision to buy that good depends

Accepted Answer

In the case of a publicly consumed good, the consumption of one person affects the consumption experience of others. For example, a live music concert, where the number of people in attendance can affect the quality of the experience for everyone. Therefore, the decision to buy the good not only depends on its characteristics but also on how many other people are consuming it.

Question 3

Which of the following is used to explain why a consumer's willingness to buy Microsoft Office increases as the number of other people who use Microsoft Office increases?

Accepted Answer

Network externalities, also known as network effects, occur when the value of a good or service to an individual increases with the number of other people using it. In the case of Microsoft Office, as more people use the software, compatibility and communication become easier, increasing its value to consumers.

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 for computer keyboards today).What is this phenomenon called?

Accepted Answer

This phenomenon is called path dependency, where the initial standard becomes so deeply rooted that it becomes difficult to change or replace with a more efficient alternative.

Question 5

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

Accepted Answer

Restaurants are often chosen based on recommendations from friends, family, or online reviews, making social influence a powerful factor in the decision-making process. Toothpaste and high-blood pressure medication are more likely to be chosen based on personal needs and preferences, while school textbooks are typically selected based on academic requirements.

Question 6

Describe the demand curve for a Giffen good.

Accepted Answer

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Question 7

Consider the following factors: 
A.culture
B.religion
C.customs
D.prices
E.income
Which of the factors above are likely to influence the choices consumers make?

Accepted Answer

All the factors listed are likely to influence the choices consumers make. Culture, religion, and customs can affect what goods and services are acceptable or preferred in a particular society. Prices and income can directly impact a consumer's purchasing power and choices. Therefore, all of these factors can impact consumer behavior and decision-making.

Question 8

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 hold this view argue that consumers will switch to a product with superior technology if the benefits outweigh the costs of switching, including any switching costs that may be incurred. They believe that consumers are rational, and therefore will not be locked into a product simply because of network externalities. They also acknowledge the existence of switching costs, but believe that these costs are outweighed by the benefits of using a superior technology.

Question 9

What is the common feature displayed by the following items?
A.eating in a newly opened "fusion" cuisine restaurant
B.attending a Red Sox game in Fenway Park
C.wearing Lucky Brand designer jeans

Accepted Answer

The common feature displayed by these items is that the consumption of these goods takes place publicly. Eating in a newly opened "fusion" cuisine restaurant and attending a Red Sox game in Fenway Park are activities that are typically done in a public setting, while wearing Lucky Brand designer jeans is a visible form of consumption.

Question 10

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

Accepted Answer

Cat food is not a product that is likely to have significant network externalities. Network externalities exist when a product's value increases as more people use it, but this is not the case with cat food.

Question 11

Firms pay famous individuals to endorse their products because

Accepted Answer

By associating their products with a famous individual, firms are trying to tap into the appeal and influence of that individual's personality and image. Research shows that consumers are more likely to buy products that are associated with people they admire or aspire to be like, so by using a celebrity endorser, firms hope to increase demand for their products. Therefore, option A is the most suitable choice as it supports the given statement.

Question 12

A good is path dependent when

Accepted Answer

A good is path dependent when the first technology that was adopted has an advantage over a better technology that came later. This means that the path taken in the past will determine the future path, and the initial choice may have lasting effects.

Question 13

Identify the one statement that does not demonstrate how social effects influence consumer choice.

Accepted Answer

This statement does not demonstrate how social effects influence consumer choice as it is simply stating a requirement for a class, not a choice made by the consumer based on social influence. The other options all demonstrate how social effects can influence consumer choice.

Question 14

A network externality occurs when

Accepted Answer

A network externality occurs when the usefulness of a good or service increases as more people use it. In other words, the value of the good is directly related to the number of people using it. For example, social media platforms like Facebook or Twitter become more useful as more people use them because they provide more opportunities for socializing and networking. This can create a positive feedback loop, where more people join the network because it's useful, making it even more useful for others to join.

Question 15

A significant downside to network externalities is that

Accepted Answer

Network externalities can create high switching costs for consumers who want to switch to a product with superior technology. This can lock consumers into using a product with inferior technology simply because it enjoys a strong network effect.

Question 16

Which of the following does not explain why consumers buy products that many other consumers are already buying?

Accepted Answer

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Question 17

Uber has come under criticism for its surge pricing because consumers see it as

Accepted Answer

The answer of Uber has come under criticism for its...

Question 18

Uber uses what is known as surge pricing to set prices based on the number of people who request rides at a given time in a given area.Based on this pricing method,prices will

Accepted Answer

Surge pricing is based on the demand for rides in a certain area at a certain time. As more people request rides, the demand increases, which leads to prices rising. When there are fewer people requesting rides, the demand decreases, which leads to prices falling. Therefore, the correct choice is C - prices will rise when demand increases.

Question 19

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 refer to the costs incurred by consumers when they switch from one product to another. In the case of established products with network externalities, consumers may be hesitant to switch to a new product with better technology due to the potential costs of leaving the established network. These costs could include lost connections with other users, incompatible software/hardware, or having to relearn a new system. Therefore, the best choice is C) switching costs.

Question 20

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 raises prices it will lower its profits.

Accepted Answer

The answer of Jamal,Lawson,and Kyle have been standing in line...

Quiz 10: Consumer Choice and Behavioral Economics