Question 1

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 2

Explain the endowment effect.

Accepted Answer

The answer of Explain the endowment effect....

Question 3

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 4

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 occurs at the point where the highest attainable indifference curve is tangent to the budget constraint. This is because at this point, the marginal rate of substitution between the two goods (the rate at which the consumer is willing to give up one good in exchange for another while remaining at the same level of satisfaction) is equal to the ratio of the prices of the goods. Therefore, any point on the budget constraint that is not tangent to an indifference curve would be suboptimal, as the consumer could move to a point on a higher indifference curve while remaining within their budget. Points on indifference curves that intersect the axes are not necessary optimal, as they do not take into account the budget constraint.

Question 5

If preferences are transitive,indifference curves

Accepted Answer

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

Question 6

What is an indifference curve?

Accepted Answer

An indifference curve is a graphical representation of the combinations of two goods that give a consumer the same level of satisfaction or utility. This means that the consumer is indifferent between the consumption of these different bundles. The curve slopes downward because as the quantity of one good increases, the consumer is willing to give up some units of the other good to maintain the same level of utility. Choice B correctly identifies an indifference curve.

Question 7

Figure 10-3 
-Refer to Figure 10-3.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 10-3 
-Refer to Figure 10-3.The Bobsey...

Question 8

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,such...

Question 9

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

Accepted Answer

Many college students overestimate their future motivation and ability to study, leading them to procrastinate and not adequately prepare for assignments and exams.

Question 10

The slope of an indifference curve

Accepted Answer

The slope of an indifference curve measures the rate at which a consumer is willing to substitute one good for another while remaining indifferent (or equally satisfied) between different combinations of these goods. This rate of substitution is known as the marginal rate of substitution (MRS).

Question 11

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

Accepted Answer

The best choice would be to consume more of good j (horizontal axis) and less of good h (vertical axis) until the consumer reaches a point where the marginal rate of substitution (MRS) equals the slope of the budget line. In this case, it appears that the MRS between h and j falls between 2 and 4 cookies per unit. Choice B represents a combination that is on the budget line and which provides the highest level of utility for this 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

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

Accepted Answer

If Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then by transitivity, she must prefer pizza to hot dogs.

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 and cannot be recovered or changed. It should not be considered in future decision-making, as it is irrelevant to any future costs or benefits.

Question 15

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 16

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

By showing a higher regular price and a lower sale price, consumers are able to compare the prices and feel like they are getting a good deal. This reference point can influence their decision to make a purchase.

Question 17

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 18

What is the marginal rate of substitution?

Accepted Answer

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

Question 19

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 20

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

Accepted Answer

The marginal rate of substitution between g and h is the slope of the indifference curve at that point. From the graph, we can see that the slope of the indifference curve passing through point G is steeper than the slope of the indifference curve passing through point H. This means that the consumer is willing to give up more h for an additional g than vice versa. Therefore, the consumer should choose a combination of g and h that lies on the indifference curve passing through point G, as this gives the most utility. The point on this indifference curve closest to the budget constraint is point B, which corresponds to 2 cookies of g and 3 cookies of h. So the best choice is B.

Quiz 10: Consumer Choice and Behavioral Economics