Question 1

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 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

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 4

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 5

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 for one bar of chocolate between g and h is the slope of the indifference curve at that point, which equals the absolute value of the ratio of the marginal utilities of cookies and chocolate at that point. Using the information from the graph, the marginal utility of the last chocolate bar consumed between g and h is 1/2 of a cookie, while the marginal utility of the last cookie consumed is 1/6 of a chocolate bar. Therefore, the MRS of chocolate for one cookie at this point is (1/2)/(1/6)=3, which means the consumer is willing to give up 3 cookies for one more chocolate bar. So, the best choice(s) depends on the prices of the goods in the market. If the price of chocolate is less than 3 times the price of a cookie, the consumer should buy more chocolate bars and fewer cookies. If the price of chocolate is more than 3 times the price of a cookie, the consumer should buy more cookies and fewer chocolate bars. If the price of chocolate is exactly 3 times the price of a cookie, the consumer is indifferent between any combination of chocolate and cookies along the same indifference curve.

Question 6

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) for one bar of chocolate between h and j is the amount of cookies that an individual is willing to give up to get one extra bar of chocolate. Moving from point h to j, the individual gives up 2 cookies (from 4 to 2) to get one extra bar of chocolate (from 1 to 2). Therefore, the MRS for one bar of chocolate between h and j is 2/1 or 11eaaa28_a9ed_825b_9b29_3dd4e6fb7a34_TB3018_11 of a cookie. The best choice(s) cannot be determined from this information alone as it depends on the individual's preferences and budget constraints.

Question 7

If preferences are transitive,indifference curves

Accepted Answer

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

Question 8

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 in question. It represents the amount of one good that a consumer is willing to give up in order to obtain an additional unit of the other good while remaining indifferent (at the same level of utility). The MRS is calculated as the ratio of the marginal utility of the two goods, which is reflected in the slope of the indifference curve.

Question 9

Explain the endowment effect.

Accepted Answer

The answer of Explain the endowment effect....

Question 10

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, regardless of future decisions.

Question 11

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

Accepted Answer

If preferences are transitive, it means that if A is preferred over B and B is preferred over C, then A is also preferred over C. Therefore, if Dawson prefers pizza to hamburgers and hamburgers to hot dogs, then she must also prefer pizza to hot dogs in order for her preferences to be transitive. Therefore, option B is the best choice.

Question 12

What is the marginal rate of substitution?

Accepted Answer

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

Question 13

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 where the indifference curve is tangent to the budget constraint. This represents the highest level of utility the consumer can achieve given their budget constraint. Options A, B, and D do not necessarily represent the optimal choice.

Question 14

What is an indifference curve?

Accepted Answer

An indifference curve shows the combinations of consumption bundles that give the consumer the same utility. Therefore, the consumer is indifferent between these consumption bundles and any point on the same indifference curve will provide the same level of utility. Choice A is incorrect because a total utility and marginal utility curve is a different concept. Choice C is incorrect because it mentions ranking of preference, which is a feature of a preference map. Choice D is incorrect because it describes a budget constraint.

Question 15

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 16

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 17

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 18

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 19

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

Research has shown that sales provide consumers with an anchor or reference point to evaluate the value of a product. By displaying a higher regular price and a lower sale price, consumers perceive the sale price as a better deal and are more likely to make a purchase. This psychological phenomenon is known as the "anchoring effect."

Question 20

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...

Quiz 10: Consumer Choice and Behavioral Economics