Deck 2: Consumers and Their Preferences

Question 1

A pychological assumption about consumer preferences that states that more of anything is always better is called satiation.

Answer 1

False

Question 2

Rationality is the assumption that economic agents know what they like and behave accordingly.

Answer 2

True

Question 3

An assumption on consumer preferences that states that any bundle is at least as good as itself is called

A) relexivity
B) transitivity
C) multiplicativity

Answer 3

relexivity

Question 4

Which of the following institutions exists in a primitive state of nature?

A) the state
B) banks
C) corporations

Question 5

A utility function is a representation of an agent's preferences that tells the agent how good a bundle is by assigning a utility number.

Question 6

The assumption of complete binary ordering does not apply to

A) comparing a bag of two pounds of apples and one pound of raspberries to a bag of one pound of apples and three pounds of raspberries
B) asking if your economics or your marketing professor is your favorite
C) choosing between two slices of pizza plus one energy drink and three slices of pizza and two energy drinks

Question 7

Transitivity is an assumption on consumer preferences that states that any bundle is at least as good as itself.

Question 8

The property of consumption sets that implies that it is possible to combine two bundles to produce a third by consuming fractions of them is called convexity.

Question 9

The assumption on consumption sets that states that it is possible to add consumption bundles is called

A) the divisibility assumption
B) the additivity assumption
C) convexity

Question 10

A consumption possibility set is the set of bundles feasible for a society's agents to consume.

Question 11

An additive utility function has the property that the marginal utility of one extra unit of any good consumed is independent of the amount of other goods consumed.

Question 12

An assumption on consumer preferences that implies that, if any two bundles in the consumption possibility set are chosen, then agents will be able to rank them is called

A) complete binary ordering
B) incomplete binary ordering
C) ordinal utility

Question 13

The reduced set of consumption bundles, each of which satisfies the budget constraint, is called the economically feasible consumption set.

Question 14

In Experimental Teaser 1, what action can the divider choose?

A) Keep all the $10
B) Give some to the receiver
C) Both options are available

Question 15

In a multiplicative utility function, utility is a function of the products of the various units of goods consumed.

Question 16

One reason that agents cannot consume infinite amounts of goods is that

A) consumption takes time and time is finite in any given day
B) the agents' eyes are bigger than their stomachs
C) factories cannot produce that many goods over the long run

Question 17

The divisibility assumption is the assumption on consumption sets that states that

A) goods are infinitely divisible
B) it is possible to add consumption bundles
C) it is possible to combine two bundles to produce a third by consuming fractions of them

Question 18

Which of the following is not a choice facing agents in the primitive state of nature?

A) how much money to earn
B) how much time to spend at leisure and how much to spend picking fruit
C) what mix of fruit they want to consume at any given point in time

Question 19

Not included in the economic definition of rationality is the concept that

A) agents know what they like
B) economists evaluate or judge the preferences of agents
C) agents behave based on their knowledge of what they like

Question 20

A psychological assumption about agents that states that they are interested only in their own utility is called selfishness.

Question 21

According to Fehr and Schmidt, if xⱼ > xᵢ, then an inequality-averse person i would have a utility function like

A) Ui(x) = xi
B) Ui(x) = xi - b(xi - xj)
C) Ui(x) = xi - a(xj - xi)

Question 22

Beyond the three rationality assumptions--completeness, reflexivity, and transitivity--what assumption is required for the use of utility functions?

Question 23

The results of the Dictator game seem to violate which of the following assumptions?

A) both selfishness and nonsatiation
B) only selfishness
C) only nonsatiation

Question 24

In the Dictator game, subjects were most selfish when

A) the experiment is done using a double-blind protocol (no one is looking)
B) the right to be the divider is allocated randomly
C) subjects have to compete for the right to be the divider (excuse to justify selfishness)

Question 25

Because it takes a fixed amount of time to consume each of two goods and the amounts differ, one good is more ____________ than the other

A) expensive
B) delicious
C) nutritious

Question 26

If you believe that the amount of utility an agent receives from raspberries directly depends on how many units of apples the agent consumes, what type of utility function should you use?

Question 27

The ________ bundle to choose from a set of available bundles is be the one that is assigned the _________ utility number by the agent's utility function.

A) best, biggest
B) best, smallest
C) worst, biggest

Question 28

The assumption on utility functions that states that, if two bundles are close to each other in the feasible set, then they will be assigned utility numbers that are close to each other as well is called

A) convexity
B) continuity
C) ordinality

Question 29

According to Fehr and Schmidt, if people get _______ than others, the receivers feel __________, and if they get _______, they feel __________.

A) less, envious, more, guilty
B) less, guilty, more, envious
C) more, neutral, less, guilty

Question 30

Imagine that you are a member of a team working on an economics group project. You have to choose between doing your share of the work to increase the group grade or sliding by on the work of the other team members. This example could be a case study for

A) nonsatiation
B) convexity of preferences
C) ambiguous selfishness

Question 31

Figure 2-1

Refer to Figure 2-1. Which point is not contained in the economically feasible consumption set?

A) a
B) b
C) c

Question 32

A place where agents can go and exchange one good for another at a fixed price is called a

A) market
B) trading pit
C) fair

Question 33

Which of the following is not a psychological assumption made about economic agents?

A) continuity
B) selfishness
C) nonsatiation

Question 34

Michelle Wu's favorite 16-ounce drinks are iced tea, lemonade, and an "Arnold Palmer," which is a mixture of iced tea and lemonade. Explain how these three drinks form a convex set.

Question 35

Reflexivity is an example of a

A) psychological assumption
B) rationality assumption
C) psychiatric assumption

Question 36

If the utility numbers we assign to objects have no meaning other than to represent the ranking of these goods in terms of a person's preferences, then utility is measurable in the

A) ordinal sense
B) cardinal sense
C) rational sense

Question 37

Why are economically feasible sets bounded?

Question 38

The function U = xy is an example of a(n)

A) multiplicative utility function
B) additive utility function
C) cardinal utility function

Question 39

Robert Rubate's utility function assigns the number 100 to a piece of cheesecake and the number 250 to a book about Thomas Jefferson. These numbers imply that the Jefferson book is two-and-a-half times as good as a piece of cheesecake. What type of utility is Robert using?

Question 40

Which assumption or assumptions permits the derivation of the existence of a continuous utility function?

A) both rationality and continuity assumptions
B) only rationality assumptions
C) only continuity assumptions