Question 1

Figure 10-4
 
-Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between h and j?

Accepted Answer

The marginal rate of substitution (MRS) measures the rate at which a consumer is willing to trade-off one good for another while maintaining the same level of utility. In this case, the MRS between h and j is the amount of cookies (y-axis) a consumer is willing to give up for one bar of chocolate (x-axis). Moving from point h to j, the consumer is willing to give up 1/4 of a cookie for one more bar of chocolate. Therefore, the best choice is B, which represents the point where the budget constraint is tangent to the highest indifference curve. At this point, the consumer is maximizing their utility given their budget and the prices of the goods.

Question 2

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card, even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Accepted Answer

The answer of Why do many film processing companies have...

Question 3

One possible reason as to why consumers respond to sales is that by displaying a "high" regular price and a "low" sale price, sales provide consumers with a reference point to interpret the prices being offered.

Accepted Answer

When consumers see a higher regular price and a lower sale price, they have a comparison point that makes the sale price appear more attractive and encourages them to make a purchase. This concept is known as anchoring, where a reference point or anchor influences our perception of value. Therefore, sales can be a powerful marketing tool to drive customer behavior.

Question 4

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then if preferences are transitive

Accepted Answer

If preferences are transitive, then if Dawson prefers pizza to hamburgers and hamburgers to hot dogs, she must also prefer pizza to hot dogs. This is because if A is preferred to B and B is preferred to C, then A must also be preferred to C. Therefore, Dawson must prefer pizza to hot dogs.

Question 5

Behavioral economists examine choices that consumers make that are not economically rational.Economists generally assume that people are rational; that is, they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs.Why do consumers not act rationally when the result is that they make themselves worse off?

Accepted Answer

The answer of Behavioral economists examine choices that consumers make...

Question 6

What is an indifference curve?

Accepted Answer

An indifference curve is a curve that shows the combinations of consumption bundles that give the consumer the same utility. This means that any point on the same indifference curve will provide the same level of satisfaction or utility to the consumer, and the curve itself represents the different trade-offs that the consumer is willing to make between the two goods being considered. Therefore, option B is the correct answer.

Question 7

If preferences are transitive, indifference curves

Accepted Answer

The answer of If preferences are transitive, indifference curves
...

Question 8

What is the marginal rate of substitution?

Accepted Answer

The answer of What is the marginal rate of substitution?
...

Question 9

Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.

Accepted Answer

The answer of Molly received an autographed poster of David...

Question 10

A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on

Accepted Answer

The consumer's utility-maximizing combination of goods is given by the point where the indifference curve is tangent to the budget constraint. This is because at this point, the marginal rate of substitution (MRS) of one good for the other is equal to the relative price of the goods in the market. The consumer will allocate their budget in a way that maximizes their utility while also taking into account the prices of the goods. Therefore, the correct answer is C.

Question 11

Figure 10-5
 
-Refer to Figure 10-5.The consumer can afford consumption bundles

Accepted Answer

The answer of Figure 10-5
 
-Refer to Figure 10-5.The consumer...

Question 12

Figure 10-3
 
-Refer to Figure 10-3.Best friends Laurel and Hardy, both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

Accepted Answer

The answer of Figure 10-3
 
-Refer to Figure 10-3.Best friends...

Question 13

Figure 10-4
 
-Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between g and h?

Accepted Answer

The marginal rate of substitution between g and h is the amount of cookies that a person is willing to give up for one more bar of chocolate. From point g to point h, the person is willing to give up 1/2 of a cookie for one more bar of chocolate. Therefore, the best choice would be to consume another bar of chocolate and give up 1/2 of a cookie.

Question 14

The absolute value of the slope of the budget constraint is equal to

Accepted Answer

The answer of The absolute value of the slope of...

Question 15

A construction project in Congressman Foghorn's district is unfinished.Foghorn has asked that a new appropriations bill include funds to complete the project, despite a report by an independent agency that the project is a waste of taxpayer money.Foghorn's project is a bridge that crosses a river between two cities in his district.The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge, located closer to the same two cities Foghorn's bridge will connect, already exists and can accommodate all traffic between the two cities.Foghorn argues that if the bridge project is not completed, the $50 million already spent will have been wasted.Is Foghorn's argument economically rational? Explain your answer.

Accepted Answer

The answer of A construction project in Congressman Foghorn's district...

Question 16

A sunk cost is a cost that has already been paid and cannot be recovered.

Accepted Answer

A sunk cost is a cost that has already been incurred and cannot be recovered. It should not be taken into account when making future decisions regarding investments or expenditures.

Question 17

Some online penny auctions charge a fee, such as $1, for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Accepted Answer

The answer of Some online penny auctions charge a fee,...

Question 18

The slope of an indifference curve

Accepted Answer

The slope of an indifference curve is the marginal rate of substitution between the two goods in question. It measures the rate at which a consumer is willing to trade one good for another while remaining indifferent (or equally satisfied) between the two. A and D are incorrect because they involve price or quantity, which are not directly related to the slope of an indifference curve. B is incorrect because the slope of an indifference curve does not measure total utility, which is a concept that refers to the overall level of satisfaction a consumer receives from consuming a bundle of goods.

Question 19

Explain the endowment effect.

Accepted Answer

The answer of Explain the endowment effect....

Question 20

Figure 10-3
 
-Refer to Figure 10-3.Best friends Laurel and Hardy both enjoy watching romantic comedies and science fiction movies.Based on the diagrams above what can you conclude about their movie preferences?

Accepted Answer

Hardy's preference for science fiction movies is represented by a larger area than Laurel's, indicating that Hardy enjoys science fiction movies more than Laurel.

Quiz 10: Consumer Choice and Behavioral Economics

Figure 10-4 -Refer to Figure 10-4.What is the marginal rate of substitution for one bar of chocolate between h and j?