Deck 13: Consumer Choice Theory

Question 1

If the price of pizza increases, the quantity of pizza demanded will fall because some consumers will switch to tacos, hamburgers, or submarine sanwiches. This is called the:

A)income effect
B)the alternative effect
C)the substitution effect
D)the normal good effect

Answer 1

the substitution effect

Question 2

A price increase for pizza will reduce the quantity of pizza demanded because it reduces a buyer's purchasing power. This is called :

A)income effect
B)the alternative effect
C)the substitution effect
D)the normal good effect

Answer 2

income effect

Question 3

One of the ugly stepsisters argues that she, rather than Cinderella, should go to the ball because she will derive more utility from it than Cinderella. An economist would:

A)agree, since the ugly stepsister's reasoning is sound.
B)want to know how much utility each will receive from attending the ball in order to determine which woman should attend.
C)point out that making interpersonal utility comparisons is not possible.
D)ask how many balls each woman has attended in order to calculate the marginal utility that each would derive from attending, and then decide who should go to the ball.

Answer 3

point out that making interpersonal utility comparisons is not possible.

Question 4

Exhibit
A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1, respectively. The marginal utility derived from each of the two goods is as follows:


-Refer to Exhibit. How many hamburgers and milkshakes will be consumed each if the consumer maximizes his utility subject to $11 of income each week?

A)5 hamburgers and 1 milkshake
B)1 hamburger and 5 milkshakes
C)4 hamburgers and 3 milkshakes
D)3 hamburgers and 4 milkshakes

Question 5

Exhibit
A consumer is faced with choosing between hamburgers and milkshakes that are priced at $2 and $1, respectively. The marginal utility derived from each of the two goods is as follows:


-Refer to Exhibit. How many hamburgers and milkshakes will be consumed if the consumer maximizes his utility subject to $14 of income each week?

A)4 hamburgers and 5 milkshakes
B)5 hamburgers and 4 milkshakes
C)4 hamburgers and 3 milkshakes
D) 3 hamburgers and 4 milkshakes

Question 6

The law of diminishing marginal utility means that:

A)marginal utility is maximized when consumers get the same amount of total utility from every good they consume.
B)total utility is maximized when consumers get the same amount of marginal utility from the last unit of every good they consume.
C)beyond some point, added units of a product provide lower and lower amounts of marginal utility.
D)a consumer would get less utility from the last unit of a good consumed when that good costs $3 than when it costs $1.

Question 7

Suppose Carrie's utility function for clams is as follows: If she consumes 1 clam, she gets 10 units of total utility; for 2 clams, she gets 18 units of total utility; for 3 clams, she gets 24 units of total utility; for 4 clams, she gets 28 units of total utility; for 5 clams, she gets 30 units of total utility; and for 6 clams, she gets 26 units of total utility.

A)Carrie gets 6 units of marginal utility for the 5^th clam.
B)Carrie gets 6 units of marginal utility for the 3^rd clam.
C)Carrie would never choose to consume the 6^th clam.
D)Both b. and c. are true.

Question 8

Suppose Carrie's utility function for clams is as follows: If she consumes 1 clam, she gets 10 units of total utility; for 2 clams, she gets 18 units of total utility; for 3 clams, she gets 24 units of total utility; for 4 clams, she gets 28 units of total utility; for 5 clams, she gets 30 units of total utility; and for 6 clams, she gets 26 units of total utility.

A)Carrie gets 9 units of marginal utility for the 2^nd clam.
B)Carrie gets 8 units of marginal utility for the 3^rd clam.
C)Carrie gets 7 units of marginal utility for the 4^th clam.
D)None of the above are true.

Question 9

If you win money in a casino you may be more likely to spend that money than your hard-earned cash. This is called:

A)compartmentalizing
B)self control
C)rule of thumb
D)anchoring

Question 10

When people make decisions based on pieces of information they are already given when they make a purchase, it is called

A)self control
B)compartmentalizing
C)anchoring
D)endowment effect

Question 11

When people alter their preferences when a choice is presented in a certain way, it is called:

A)anchoring
B)framing
C)the endowment effect
D)compartmentalizing

Question 12

The idea that when we own something we value it more than other people do is called:

A)self control
B)anchoring
C)compartmentalizing
D)the endowment effect

Question 13

?Exhibit
?


-Refer to Exhibit. Which budget line depicts a decrease in the price of X?

A)(1)
B)(2)
C)(3)
D)(4)

Question 14

?Exhibit
?


-Refer to Exhibit. Which budget line depicts an increase in income?

A)(1)
B)(2)
C)(3)
D)(4)

Question 15

?Exhibit
?


-Refer to Exhibit. Which budget line depicts a decrease in income?

A)(1)
B)(2)
C)(3)
D)(4)