Question 1

The theory of bounded rationality suggests that as price rises:

Accepted Answer

The answer of The theory of bounded rationality suggests that...

Question 2

The theory of rational choice assumes that:

Accepted Answer

The theory of rational choice assumes that tastes are given and stable, meaning they are considered constant when individuals make decisions to maximize their utility.

Question 3

Which of the following is an example of a focal point equilibrium?

Accepted Answer

A focal point equilibrium occurs when individuals converge on a particular behavior or choice because it is seen as a standard or trend, often influenced by prominent figures or societal norms. In this case, purchasing hip-hugger pants because pop stars wear them is an example of following a trend set by influential figures.

Question 4

According to Thorstein Veblen, a successful businessman would be most likely to demonstrate his worth to others by:

Accepted Answer

Thorstein Veblen is known for his theory of "conspicuous consumption," where individuals display wealth and status through extravagant spending on luxury goods and services. Buying expensive jewels for a trophy wife and showing her off aligns with this concept.

Question 5

The use of expensive cars and yachts to impress others rather than just as transportation is an example of what economists call:

Accepted Answer

Conspicuous consumption refers to the act of buying and using goods to publicly display economic power and wealth, rather than for the intrinsic utility of the goods themselves.

Question 6

The theory of bounded rationality is consistent with which of the following?

Accepted Answer

Bounded rationality suggests that individuals make decisions based on limited information and cognitive limitations, often using heuristics or rules of thumb to simplify complex decision-making processes.

Question 7

It is common for fashion trends to follow celebrity fashion choices. This is an example of:

Accepted Answer

Focal point equilibrium occurs when people coordinate their actions based on a prominent or influential example, such as celebrities setting fashion trends.

Question 8

Which of the following is an example of conspicuous consumption?

Accepted Answer

Conspicuous consumption refers to buying goods or services to publicly display wealth or status rather than for personal enjoyment or practical use. Purchasing an expensive automobile to impress others fits this definition.

Question 9

Conspicuous consumption refers to the consumption of goods and services:

Accepted Answer

Conspicuous consumption is the act of buying and using products to make a statement about social status, rather than for personal enjoyment.

Question 10

Some kids wait until the school year begins to buy their back-to-school clothes so that they are sure to fit in. Such follow-the-leader behavior is an example of what the text calls:

Accepted Answer

This behavior is an example of focal point equilibrium, where individuals make decisions based on the actions of others to ensure they fit in or conform to a group norm.

Question 11

Focal point equilibria are consistent with:

Accepted Answer

The answer of Focal point equilibria are consistent with:
...

Question 12

Economists focus on self-interest in explaining choices because:

Accepted Answer

Economists use the concept of self-interest as a simplifying assumption to model and predict behavior, as it provides a consistent framework for analyzing decision-making and market outcomes.

Question 13

The theory of bounded rationality, based on rules of thumb such as "the value of a product is indicated by its price," may result in:

Accepted Answer

Bounded rationality suggests that consumers use simple rules of thumb to make decisions. If consumers believe that higher prices indicate higher value, this could lead to an upward-sloping demand curve, as higher prices might increase perceived value and demand.

Question 14

Economists account for changes in tastes for a good as:

Accepted Answer

Changes in tastes for a good cause a shift in the demand curve because they change the quantity demanded at each price level.

Question 15

If people generally believe that "you get what you pay for," it is reasonable for them to:

Accepted Answer

If people believe "you get what you pay for," they may assume that higher-priced items are of higher quality, potentially leading to an upward-sloping demand curve as higher prices could increase perceived value and demand.

Question 16

When companies supersized luxury consumer products to cater to the superwealthy who wanted to rise above the pack, this made use of the concept of:

Accepted Answer

Conspicuous consumption refers to the practice of purchasing goods or services to publicly display wealth and status rather than to cover basic needs. Supersizing luxury products for the superwealthy aligns with this concept as it allows them to showcase their wealth and differentiate themselves from others.

Question 17

According to the principle of rational choice, if there is diminishing marginal utility:

Accepted Answer

According to the principle of rational choice, if the price received for supplying a good increases, producers are incentivized to supply more of that good to maximize their utility, despite diminishing marginal utility.

Question 18

Refer to the following table. If Jane's hourly wage rose from $2 per hour to $4 an hour and Jane had 6 hours to work or play, Jane would: $\begin{array}{l}
\begin{array}{|c|c|c|c|}
\hline\text { Spending}&\text {  Total Utility of spending(\$)}&\text {  Hours of leisure }&\text { Total utility of leisure }\
\hline \$ 2 & 60 & 1 & 30 \
\hline \$ 4 & 110 & 2 & 54 \
\hline \$ 6 & 148 & 3 & 70 \
\hline \$ 8 & 172 & 4 & 78 \
\hline \$ 10 & 180 & 5 & 78 \
\hline \$ 12 & 186 & 6 & 70 \
\hline
\end{array}
\end{array}$

Accepted Answer

When Jane's wage is $2/hour, she maximizes utility by working 4 hours (earning $8) and playing 2 hours (total utility = 172). When her wage increases to $4/hour, she maximizes utility by working 3 hours (earning $12) and playing 3 hours (total utility = 186).

Question 19

Mike is maximizing utility by working 10 hours a week and studying 10 hours a week. Mike has only 20 hours to devote to either working or studying. If Mike realizes that another hour of studying will improve his grade on an exam, thus raising the utility of another hour of study, Mike will:

Accepted Answer

The answer of Mike is maximizing utility by working 10...

Question 20

An assumption of economists' standard theory of choice is that:

Accepted Answer

Economists' standard theory of choice assumes that preferences are given and not influenced by societal factors, focusing on rational decision-making based on these fixed preferences.

Quiz 19: The Logic of Individual Choice: the Foundation of Supply and Demand