Question 1

Behavioural 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?
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Accepted Answer

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

Question 2

Figure 6.4 
-Refer to Figure 6.4.Which of the following statements is true?

Accepted Answer

The answer of Figure 6.4 
-Refer to Figure 6.4.Which of...

Question 3

Figure 6.3 
-Refer to Figure 6.3.The Bobsey twins, 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 6.3 
-Refer to Figure 6.3.The Bobsey...

Question 4

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

Accepted Answer

Since preferences are transitive, if Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then she must prefer pizza to hot dogs.

Question 5

The slope of an indifference curve

Accepted Answer

The slope of an indifference curve measures the marginal rate of substitution (MRS) between the two goods, which is the amount of one good that a consumer is willing to give up in order to obtain one additional unit of the other good, while remaining on the same indifference curve. The MRS is calculated by dividing the marginal utility of the good on the horizontal axis by the marginal utility of the good on the vertical axis.

Question 6

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

This is a commonly accepted theory in marketing and consumer behavior research. Sales serve as a reference point for consumers to evaluate the value of a product and make purchasing decisions.

Question 7

One reason university students do not study enough to get high grades is that they are unrealistic about their future behaviour.

Accepted Answer

University students may have a tendency to underestimate the amount of time and effort needed to achieve high grades, or to overestimate their ability to balance academic responsibilities with other commitments. This can lead to unrealistic expectations about their study habits and ultimately result in suboptimal grades.

Question 8

If preferences are transitive, indifference curves

Accepted Answer

Indifference curves do not intersect because if they did, it would violate the assumption of transitivity in consumer preferences. Transitivity implies that if a consumer prefers bundle A to bundle B and prefers bundle B to bundle C, then the consumer must prefer bundle A to bundle C. Intersecting indifference curves would suggest a consumer is indifferent between bundles on different curves, contradicting the principle of transitivity.

Question 9

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

Accepted Answer

The utility-maximising combination of goods will be the point on the indifference curve that is tangent to the budget constraint. This is because at this point, the marginal rate of substitution between the two goods is equal to the relative price of the two goods. Therefore, the consumer cannot increase their utility by purchasing more of one good and less of the other without violating the budget constraint. The points on the indifference curve that intersect the horizontal or vertical axis or the budget constraint where it intersects one of the axes do not necessarily correspond to the utility-maximising combination of goods.

Question 10

Figure 6.4 
-Refer to Figure 6.4.The consumer can afford consumption bundles

Accepted Answer

The answer of Figure 6.4 
-Refer to Figure 6.4.The consumer...

Question 11

A common mistake made by consumers is the failure to take into account the monetary costs of their actions.

Accepted Answer

The answer of A common mistake made by consumers is...

Question 12

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?
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Accepted Answer

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

Question 13

What is the marginal rate of substitution?

Accepted Answer

The marginal rate of substitution (MRS) is the rate at which a consumer is willing to trade one good for another without any loss in utility, maintaining the same level of satisfaction.

Question 14

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, meaning it has already been paid and cannot be recovered even if the decision that led to that cost turned out to be a mistake.

Question 15

Figure 6.3 
-Refer to Figure 6.3.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.

Question 16

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. It represents the different combinations of two goods that give the consumer the same level of satisfaction or utility, and the consumer is indifferent between these combinations. Therefore, choice B is the correct definition of an indifference curve.

Question 17

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

Accepted Answer

The slope of the budget constraint is determined by the ratio of the prices of the two goods, specifically the price of the good on the horizontal axis divided by the price of the good on the vertical axis.

Question 18

Behavioural economics is the study of situations in which people make rational choices.

Accepted Answer

This statement is false. Behavioural economics is the study of situations in which people do not make rational choices due to cognitive biases, emotions, and social factors.

Question 19

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?
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Accepted Answer

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

Question 20

Explain the endowment effect.
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Accepted Answer

The answer of Explain the endowment effect.
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Quiz 6: Consumer Choice and Behavioural Economics

Figure 6.4 -Refer to Figure 6.4.Which of the following statements is true?

Figure 6.3 -Refer to Figure 6.3.The Bobsey twins, 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?