Quiz 19: Behavioral Economics
Business
Q 1Q 1
In traditional economic theory, consumers are assumed to be rational, which means that they:
A) attempt to maximize utility, subject to a budget constraint, and they do so with a limited knowledge about prices.
B) have full knowledge of prices and attempt to maximize utility, subject to a budget constraint.
C) look to maximize utility, often without regard to income or prices.
D) behave in unpredictable but observable ways of choosing goods and services.
Free
Multiple Choice
B
Q 2Q 2
In traditional economic theory, producers are assumed to be rational, which means that they:
A) attempt to maximize profit with a limited knowledge about input prices.
B) have full knowledge of input prices and attempt to maximize profit in both the short- and the long-run.
C) look to maximize profit, often without regard to input prices or available technologies.
D) behave in unpredictable but observable ways of producing goods and services.
Free
Multiple Choice
B
Q 3Q 3
Based on the assumptions of traditional economic theory,
A) we conclude that it is not possible to derive demand curves for consumers or cost curves for producers.
B) we construct a theory of consumer and producer behavior described by demand and cost curves, which assume that consumers and producers make decisions based on all available information.
C) we build theories that work, even when we assume a lack of perfect knowledge on the part of consumers and producers.
D) we build demand and cost curves that may behave in unpredictable ways, because we can't assume that consumers and producers make decisions based on all available information.
Free
Multiple Choice
B
Q 4Q 4
In the field of Behavioral Economics, we challenge the concept that:
A) consumers behave in the manner described by the constrained maximization problem.
B) firms have incomplete knowledge of production technologies.
C) firms choose combinations of labor and capital that may not minimize cost.
D) psychological factors have little to do with consumer and producer decisions.
Free
Multiple Choice
Q 5Q 5
Behavioral economics is the study of:
A) rational behavior under the assumptions of utility maximization and perfect knowledge.
B) economic behavior when economic agents are not rational.
C) economic theories that focus on the psychological aspects of consumer and producer behavior.
D) economic problems that are not considered by traditional economic theory.
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Multiple Choice
Q 6Q 6
The basic theory of consumer behavior is based on which of these assumptions?
A) Consumers have clear preferences.
B) Consumers face budget constraints.
C) Consumers look for combinations of goods that maximize their utility based on information about about preferences, income, and prices.
D) All of the above
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Multiple Choice
Q 7Q 7
The assumption that consumers have clear preferences is:
A) a main axiom of behavioral economics.
B) an assumption that behavioral economics calls into question.
C) a logical conclusion of observed behavior.
D) a basic assumption of basic economic theory that carries over to behavioral economics.
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Multiple Choice
Q 8Q 8
The assumption that consumer choices are utility-maximizing is:
A) a main axiom of behavioral economics.
B) an assumption that behavioral economics calls into question.
C) a logical conclusion of observed behavior.
D) a basic assumption of basic economic theory that carries over to behavioral economics.
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Multiple Choice
Q 9Q 9
Suppose that after an increase in price, a consumer chooses not to purchase the good because she perceives that the price increase is fundamentally unfair. How does the traditional theory of consumer behavior treat this situation?
A) By adjusting the budget line
B) By shifting an indifference curve
C) By modifying the equal marginal principle
D) None of the above. The basic theory does not account for this type of situation.
Free
Multiple Choice
Q 10Q 10
Leaving a large tip at a restaurant to which you will never return is:
A) a manner of behavior that only traditional economic theory can explain.
B) an example of irrational behavior under the theory of behavioral economics.
C) an example of why an alternative theory to the basic theory of consumer behavior is needed to explain this sort of behavior.
D) a way of increasing utility, which places the consumer in a higher indifference curve.
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Multiple Choice
Q 11Q 11
A more realistic theory than the traditional theory of consumer behavior would:
A) the context, or setting one is in.
B) take into account the fairness of an economic transaction.
C) introduce some rules of thumb to explain complex behavior that the basic theory cannot explain.
D) do all of the above.
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Multiple Choice
Q 12Q 12
A reference point refers to:
A) a point of equilibrium in the indifference map from which consumers may deviate.
B) a statement or assumption in basic consumer theory that serves as a starting point of contention in the theory of behavioral economics.
C) the point from which an individual makes a consumer decision.
D) the point of utility maximization from which a consumer departs, only to return later to it.
Free
Multiple Choice
Q 13Q 13
A reference point may be anchored on:
A) our past consumption of a good.
B) our experience in a market.
C) our expectation about how prices should behave.
D) all of the above.
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Multiple Choice
Q 14Q 14
Finish the following sentence: A reference point can influence how people make economic decisions,
A) but the theory does not claim that reference points have a large effect on those decisions.
B) and that influence can be very strong.
C) although there is no consensus on whether that influence is large or small.
D) but only traditional economic theory can fully explain their degree of influence in those decisions.
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Multiple Choice
Q 15Q 15
An example of a reference point is the fact that individuals tend to:
A) value an item more when they own it.
B) value an item more when they do not own it.
C) value an item the same, whether they own it or not.
D) value an item more when the lose it.
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Multiple Choice
Q 16Q 16
The endowment effect refers to the tendency of individuals to:
A) value an item more when they own it than when they do not.
B) value an item more when they do not own it.
C) value an item the same, whether they own it or not.
D) value an item more when the lose it.
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Multiple Choice
Q 17Q 17
One manifestation of the endowment effect as a reference point is:
A) the willingness of an individual to trade a good based on his original endowment of that and other goods.
B) the willingness of an individual to buy a good based on the ownership of that good by other individuals.
C) the refusal of a person to sell a good for a price other than what she paid for it.
D) a difference between the price that a person is willing to pay for a good and the price that she es willing to sell the same good to someone else.
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Multiple Choice
Q 18Q 18
In the classroom experiment where a mug is bought and sold,
A) those who possessed a mug where willing to sell it for less than the price that those who did not have a mug were willing to offer.
B) those who possessed a mug where willing to sell it for more than the price that those who did not have a mug were willing to offer.
C) the price that students were willing to pay to obtain a mug eventually coincided precisely with the price required by those who possessed a mug and were willing to sell it.
D) the price of a mug appeared to have no correlation with whether a student owned a mug or not.
Free
Multiple Choice
Q 19Q 19
In the classroom experiment where a mug is bought and sold,
A) acquiring the mug was perceived to be a greater "gain" for those who acquired it than the "loss" for those who gave it up.
B) giving up the mug was perceived to be a greater "loss" to those who had one than the "gain" from obtaining a mug for those without one.
C) the price at which the mug was exchanged compensated precisely the value gained and lost by the traders.
D) the price at which the mug could be sold was always less than the price at which the mug was acquired.
Free
Multiple Choice
Q 20Q 20
A reference point in the theory of behavioral economics focuses on:
A) the preference of individuals toward risk rather than risk aversion.
B) a tendency for individuals to prefer avoiding loses over acquiring gains.
C) a tendency for individuals to behave in a manner such that the possible gains from an activity cancel out with the possible loses.
D) behavior that does not take into account gains against possible loses.
Free
Multiple Choice
Q 21Q 21
In the classroom mug experiment, students receive the mug for free and are willing to sell it:
A) for less than it's perceived market value, since it was free in the first place.
B) for exactly the perceived market value, without enjoying a gain or suffering a loss.
C) only for more than its perceived market value; otherwise it would create a perceived loss.
D) for any amount the buyer would offer, since it was free in the first place.
Free
Multiple Choice
Q 22Q 22
When an investor purchases a share of stock at $50 and the stock tumbles to $35, the investor with loss aversion prefers to:
A) sell the stock at $35 and use the proceeds to make a better investment.
B) the investor will keep the stock and avoid the losses, at least until the price returns to $50.
C) buy more shares at 35 dollars.
D) leave the stock market.
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Multiple Choice
Q 23Q 23
Over time, endowment effects tend to:
A) disappear, as individuals gain experience.
B) be stronger as individuals gain expertise.
C) become a permanent condition.
D) cancel each other out.
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Multiple Choice
Q 24Q 24
The manner in which choices are described-and their appearance-can affect the decisions that individuals make. The tendency to rely on these contexts is known as:
A) Framing.
B) Stereotyping.
C) Referencing.
D) Salience.
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Multiple Choice
Q 25Q 25
Consumer decisions may be affected by one or more features of a good that consumers perceived as important. This perception is called:
A) Framing.
B) Referencing.
C) Salience.
D) Differentiation.
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Multiple Choice
Q 26Q 26
Which pairs of effects are closely related?
A) Endowment and loss aversion
B) Framing and salience
C) Both of the above
D) None of the above
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Multiple Choice
Q 27Q 27
Which of the following is more important in sending a signal of the value of a good to consumers?
A) To inform consumers of the many features a good offers
B) To send a consistent message as a signal
C) To ensure that the signal is credible
D) To ensure that the signal reaches as many consumers.as possible
Free
Multiple Choice
Q 28Q 28
Emphasis on product reliability is a good example of:
A) Framing.
B) Endowment.
C) Salience.
D) Loss aversion.
Free
Multiple Choice
Q 29Q 29
In the experiment that observes how people become less prone to violate a local ordinance on littering, the factor that changed their behavior was, predominantly:
A) the imposition of a strong financial disincentives.
B) the warnings issued by law enforcement about their activities.
C) a raising of public conscience about the effects of littering.
D) the potential benefits of littering.
Free
Multiple Choice
Q 30Q 30
By placing emphasis on the important features of a good or service,
A) we can enrich traditional microeconomic theory.
B) consumers can be informed, but rarely convinced to improve the accuracy of their beliefs about available choices.
C) we can convince individuals to ignore their prior knowledge about the costs and benefits of their choices.
D) we can divert attention from features they don't like.
Free
Multiple Choice
Q 31Q 31
In behavioral economics, we assert that: people sometimes do things because they think it is the fair thing to do,
A) even if there is no financial or other material benefit.
B) but actions based on fairness must also be backed by real financial gains or other material or tangible benefit.
C) sometimes expecting nothing in return, but most often expecting real gains also.
D) but only if the net gains exceed the net losses.
Free
Multiple Choice
Q 32Q 32
Which of the following are examples of actions involving fairness?
A) Charitable giving
B) Volunteering time
C) Tipping in a restaurant
D) All of the above
Free
Multiple Choice
Q 33Q 33
Basic consumer theory:
A) cannot possibly account for the effects of fairness.
B) can be modified to account for the effects of fairness.
C) fundamentally ignores fairness as a determinant of consumer behavior.
D) is a salient conclusion in the model.
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Multiple Choice
Q 34Q 34
Figure 19.2.1
-Refer to Figure 19.2.1 above. The figure describes the demand for snow shovels before and during a snow storm. Many consumers buy shovels in anticipation of snow. Which curve or portion of a curve corresponds to those consumers?
A) The demand curve D1
B) The flat portion of demand curve D2
C) The dashed portion of demand curve D2
D) The dashed and solid portions of demand curve D2
Free
Multiple Choice
Q 35Q 35
Figure 19.2.1
-Refer to Figure 19.2.1 above. The price level of $40 illustrates the fact that:
A) the price of a shovel increases to $40 during a snow storm.
B) $40 is an unfair price for shovels, so no consumer would ever pay that amount.
C) some consumers are willing to pay as much as $40 for a shovel, even in the absence of a snow storm.
D) all of the above are true.
Free
Multiple Choice
Q 36Q 36
Figure 19.2.1
-Refer to Figure 19.2.1 above. Which of the following statements is true?
A) The price of a shovel increases to $40 during a snow storm, and Q1 units are sold.
B) The price of shovels increases to $25 during a snow storm, and the quantity sold would range between Q1 and Q2.
C) The price of shovels during a snow storm remains at $20, but quantity demanded increases to Q2 units.
D) An increase in the price of shovels, from $20 to as much as $40, is considered fair during a snow storm.
Free
Multiple Choice
Q 37Q 37
Figure 19.2.1
-Refer to Figure 19.2.1 above. Consumers understand why the price of shovels would increase somewhat during a snow storm and would be willing to buy at higher prices. Which demand or portion of a demand curve best reflects that statement?
A) The demand curve D1
B) The flat portion of demand curve D2
C) The dashed portion of demand curve D2
D) The steep, solid portion of D2
Free
Multiple Choice
Q 38Q 38
Figure 19.2.1
-Refer to Figure 19.2.1 above. Consumers would not buy a shovel when they perceive price gauging. Which demand or portion of a demand curve best reflects that statement?
A) The demand curve D1
B) The dashed portion of demand curve D2
C) The flat portion of demand curve D2
D) The steep, solid portion of D2
Free
Multiple Choice
Q 39Q 39
Figure 19.2.1
-Refer to Figure 19.2.1 above. During a snow storm,
A) the price of shovels and the quantity demanded increase.
B) the price of shovels increases, but the quantity sold remains at its initial level, Q1.
C) the quantity of shovels increases, but the price remains at $20.
D) the price of shovels settles at $40 and the quantity demanded decreases.
Free
Multiple Choice
Q 40Q 40
Figure 19.2.1
-Refer to Figure 19.2.1 above. Due to the perceived fairness of price increases during a snow storm, the demand curve:
A) is very elastic at prices above $25.
B) is very inelastic at prices above $25.
C) is elastic for price decreases but inelastic for price increases.
D) is inelastic throughout its entire range.
Free
Multiple Choice
Q 41Q 41
In the ultimatum game, the basic theory of utility would suggest that the optimal distribution of $100 is, for you and the stranger, respectively:
A) $99; $1.
B) $50; $50.
C) $67; $33.
D) none of the above
Free
Multiple Choice
Q 42Q 42
When the ultimatum game is played experimentally, the typical range of proposals for sharing $100 between you and the stranger is,
A) $99; $1 and $$50; $50.
B) $67; $33 and $50; $50.
C) $67; $33 and $99; $1.
D) none of the above
Free
Multiple Choice
Q 43Q 43
In the efficiency wage theory of labor, an increase in wages is justified by a resulting:
A) increase in the workers' standard of living.
B) increase in the attractiveness of the work environment.
C) increase in productivity and the desire to work harder.
D) all of the above.
Free
Multiple Choice
Q 44Q 44
In the efficiency wage theory,
A) fairness directly affects worker productivity.
B) fairness concerns do not apply.
C) fairness has a mixed influence on productivity.
D) fairness and wage increases depend on the level of employment.
Free
Multiple Choice
Q 45Q 45
Business firms have an easier time explaining price increases when those price increases are in response to:
A) higher costs.
B) higher demand.
C) unfair taxation.
D) a lack of competition.
Free
Multiple Choice
Q 46Q 46
In the basic model of consumer behavior,
A) fairness cannot be explained.
B) fairness depends more on income than on preferences.
C) fairness is manifested by the consumers' willingness to pay.
D) a reduction in demand and market price can be the result of even one consumer who perceives that prices are unfair.
Free
Multiple Choice
Q 47Q 47
Using a traditional labor market explanation of the influence of fairness, we would assert that:
A) the dissatisfaction with unfair wages by just one or few workers is sufficient to push wages up.
B) unemployment caused by the imposition of minimum-wage laws is fundamentally unfair.
C) workers do not complain about unfair wages if there is a glut of unemployed workers.
D) if enough workers do not feel that their wages are fair, there will be a reduction in the supply of labor, and wage rates will increase.
Free
Multiple Choice
Q 48Q 48
People resort to rules of thumb to make complex decisions, especially:
A) if they have a good understanding of the factors involved.
B) when they have little experience with the issue at hand.
C) when the market system does not function freely.
D) when issues of fairness are involved.
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Multiple Choice
Q 49Q 49
The basic model of consumer behavior does not include rules of thumb, mainly because:
A) the model is biased against hard rules.
B) the model does not believe that consumers are fully informed.
C) it does not allow for biases to be introduced in our economic decision making.
D) it allows for benchmarks that replace rules of thumb.
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Multiple Choice
Q 50Q 50
In understanding the concept of anchoring, which two factors play an essential role?
A) Price and quantity of equilibrium
B) Income and preferences
C) Utility maximization and the budget constraint
D) The context and the information available
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Multiple Choice
Q 51Q 51
Anchoring is more closely associated with which of the following factors?
A) Stereotypes that affect your decisions
B) Bias against higher prices
C) Suggestions that affect your final decision
D) Manipulation of consumer prices
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Multiple Choice
Q 52Q 52
The reason why so many price tags end in 95 or 99 is based on the understanding that consumers tend to overemphasize:
A) the first digit of prices.
B) the last two digits of prices.
C) the attractiveness of prices stated in cents.
D) the savings associated with even one cent.
Free
Multiple Choice
Q 53Q 53
A common bias in consumer decision making is to:
A) think that prices should be lower than they are.
B) ignore price and other key information when making decisions.
C) view shipping costs as unfair.
D) view prices to be lower than they really are.
Free
Multiple Choice
Q 54Q 54
Rules of thumb are useful because:
A) they introduce biases in decision making.
B) they help to save time and effort.
C) anchoring can confuse consumers.
D) all of the above
Free
Multiple Choice
Q 55Q 55
Increased uncertainty and lack of understanding of probability to make decisions
A) strengthen the case for rules of thumb.
B) can lead to strong biases that prevent optimal decisions.
C) do not interfere in the calculation of expected utility.
D) cause consumers to understate the probability of an event.
Free
Multiple Choice
Q 56Q 56
The law of small numbers refers to:
A) the tendency for events with the same likelihood of occurrence to even out , given enough trials.
B) a tendency to take unnecessary risks without full information.
C) the tendency to overstate the probability of an event when faced with little information.
D) the tendency to ignore events that have a small likelihood of occurrence.
Free
Multiple Choice
Q 57Q 57
Research has shown that investors in the stock market are often subject to a small-numbers bias, meaning that they believe that:
A) the stock market is a zero-sum game, where long-term gains cancel out with long-term losses.
B) the likelihood of earning a steady positive return in the market over the long run is very small.
C) high returns over the past few years are likely to be followed by more high returns over the next few years
D) high returns over the past few years are likely to be followed by low returns eventually over the next few years.
Free
Multiple Choice
Q 58Q 58
To estimate the expected return on equity investments:
A) it is necessary to look only at recent data on stock returns.
B) one needs to look only at expected returns on debt instruments.
C) would require a study of stock market returns for many decades.
D) would require only a course in financial economics.
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Multiple Choice
Q 59Q 59
A bubble in the housing market occurs when, after watching housing prices rise for several years, house buyers come to believe that:
A) housing prices will eventually fall.
B) housing prices will continue to rise.
C) the housing market could be a risky investment.
D) the price increases cannot be explained, and uncertainly drives them out of the market.
Free
Multiple Choice
Q 60Q 60
When the true probability of an event is unknown, individuals tend to:
A) form subjective probabilities when assessing that event.
B) avoid the event for which they cannot estimate probabilities.
C) assign very small probabilities to those events.
D) ignore the possibility that those events will occur.
Free
Multiple Choice
Q 61Q 61
When the probability of an event is very, very small, individuals tend to:
A) give a disproportionately large weight to its probability of occurring.
B) ignore that possibility in their decision making.
C) hesitate between assigning a large or a small likelihood that it will happen to them.
D) take unnecessary risks.
Free
Multiple Choice
Q 62Q 62
Overestimating an individual's prospects or abilities is a case of:
A) overconfidence.
B) over-optimism.
C) over-precision.
D) overcorrection.
Free
Multiple Choice
Q 63Q 63
Which of the following best describe an unrealistic belief that things will work out well?
A) Overconfidence
B) Over-optimism
C) Over-precision
D) Overcorrection
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Multiple Choice
Q 64Q 64
When a consumer believes that she can pay her credit card much faster than it is realistic, she suffers precisely from:
A) overconfidence.
B) over-optimism.
C) over-precision.
D) overcorrection.
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Multiple Choice
Q 65Q 65
When a worker believes that she can get a promotion much faster than her peers, she suffers precisely from:
A) overconfidence.
B) over-optimism.
C) over-precision.
D) overcorrection.
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Multiple Choice
Q 66Q 66
When a CEO believes (unrealistically) that a new product her firm is developing will be a huge success, she suffers precisely from:
A) overconfidence.
B) over-optimism.
C) over-precision.
D) overcorrection.
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Multiple Choice
Q 67Q 67
The natural human tendency to underestimate the likelihood of a catastrophic medical emergency is a case of:
A) overconfidence.
B) over-optimism.
C) over-precision.
D) overcorrection.
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Multiple Choice
Q 68Q 68
Which of the following best describes an unrealistic belief that one can accurately predict outcomes?
A) Overconfidence
B) Over-optimism
C) Over-precision
D) Overcorrection
Free
Multiple Choice
Q 69Q 69
Over-precision is a form of:
A) the law of small numbers.
B) anchoring.
C) framing.
D) salience.
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Multiple Choice
Q 70Q 70
In the investor's choice problem, the budget line describes:
A) the trade-off between risk and expected return.
B) combinations of risk and return that leave the investor equally satisfied.
C) combinations of risk associated with combinations of stocks and riskless assets.
D) the quantity of stocks that can be purchased with a limited budget constraint.
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Multiple Choice
Q 71Q 71
In the investor's choice problem, the intercept of the budget line corresponds to:
A) the return on the risk-free asset.
B) the standard deviation of the risky asset.
C) the difference between the return on the risky asset and the return on the risk-free asset.
D) The quantity of stocks purchased when the entire budget is spent only on stocks.
Free
Multiple Choice
Q 72Q 72
In the investor's choice problem, the dependent and independent variables are, respectively:
A) the quantity of risk-free assets and the quantity of risky assets.
B) the return on the risk-free asset and the return on the portfolio.
C) the standard deviation of the portfolio and the return on the portfolio.
D) the standard deviation of the risky asset and the return on the risky asset.
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Multiple Choice
Q 73Q 73
In the investor's choice problem, the slope of the budget line equals:
A) the difference between the expected return on the risky asset and return on the risk-free asset, divided by the standard deviation of the risky asset.
B) the difference between the expected return on the risky asset and return on the risk-free asset, divided by the standard deviation of the portfolio.
C) the difference between the expected return on the risky asset and the return on the entire portfolio., divided by the standard deviation of the portfolio.
D) the rate at which risky assets are traded for risk-free assets.
Free
Multiple Choice
Q 74Q 74
Figure 19.3.1
-Refer to Figure 19.3.1 above. In this diagram of an overconfident investor, the utility-maximizing investment portfolio is:
A) at the tangency of U1 and the actual budget line.
B) at the tangency of U1 and the perceived budget line.
C) at the tangency of U2 and the perceived budget line.
D) at R' on the actual budget line.
Free
Multiple Choice
Q 75Q 75
Figure 19.3.1
-Refer to Figure 19.3.1 above. The slope of the perceived budget line is steeper because the investor:
A) decides to invest more in the risk-free asset and less in the stock market.
B) perceives an increase in the standard deviation of the return in the stock market .
C) perceives the riskiness of stocks to be smaller than it really is.
D) becomes more risk averse.
Free
Multiple Choice
Q 76Q 76
Figure 19.3.1
-Refer to Figure 19.3.1 above. In equilibrium on the perceived budget line, the investor:
A) reduces the purchase of stocks, but also reduces the risk in her portfolio.
B) reduces the purchase of stocks, but increases the risk in her portfolio.
C) makes the fraction of stocks in her portfolio larger than is optimal.
D) maintains the same fraction of stocks in her portfolio but reduces perceived risk.
Free
Multiple Choice
Q 77Q 77
Overconfidence leads an investor to:
A) invest too little money in stocks.
B) bear more risk than she should.
C) think that the riskiness of her portfolio is higher than it actually is.
D) all of the above
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Multiple Choice
Q 78Q 78
Some investors and stock analysts argued that the increases in the stock prices of many Internet companies between 1995 and 2000 were justified by fundamentals. This means that:
A) they recognized the potential of the Internet.
B) these companies were sure to make profits long into the future.
C) the purchase of those stocks at high prices were justified.
D) all of the above
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Multiple Choice
Q 79Q 79
The Internet bubble of 1995-2000 was caused by the belief that the stock prices of Internet companies:
A) were justified by fundamentals.
B) would keep rising.
C) were probably temporary but certain.
D) all of the above
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Multiple Choice
Q 80Q 80
Investors caught in a bubble believe that:
A) prices; will not fall; prices will only keep going up.
B) prices might eventually fall, but they will know when to sell before that happens.
C) if the bubble bursts, they can sell and still earn a large profit.
D) if the bubble bursts, the losses would not be significant.
Free
Multiple Choice
Q 81Q 81
After the bubble in housing prices in 2008 burst, we learned that:
A) a bubble can be harmless in the sense that while people lose money, there is no lasting damage to the overall economy.
B) consumers usually loose, but large banks remain largely unharmed.
C) consumers face foreclosures and large banks face bankruptcy.
D) large banks must be bailed out, but households are usually not harmed.
Free
Multiple Choice
Q 82Q 82
The recession of 2008, caused by the housing bubble, was:
A) a mild recession, similar to the recession of 2001.
B) a strong recession but not as deep as the recession of the early 1980s.
C) the worst recession since the Great Depression.
D) not compared in magnitude or depth to other recessions.
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Multiple Choice
Q 83Q 83
The housing price index was developed by:
A) Friedman and Phelps.
B) Case and Schiller.
C) Pindyck and Rubinfeld.
D) Greenspan and Bernanke.
Free
Multiple Choice
Q 84Q 84
Housing prices near the 2008 housing crises reached their peak in the year:
A) 2006.
B) 2007.
C) 2008.
D) 2009.
Free
Multiple Choice
Q 85Q 85
In real terms, housing prices after the burst of the housing bubble fell on average by:
A) 10%
B) 20%
C) 40%
D) 50%
Free
Multiple Choice
Q 86Q 86
In 2008, the housing crisis in the United States:
A) was contained mainly within a few Southern states.
B) happened within the United States but did not extend internationally.
C) led to a burst in housing prices in Europe and a worldwide debt crisis.
D) did not spread to other sectors of the economy.
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Multiple Choice
Q 87Q 87
An assessment (e.g., of an investment opportunity) based in part on the actions of others, which in turn were based on the actions of others, is:
A) the process of acquiring full information.
B) an informational cascade.
C) a portfolio assessment.
D) a prospectus.
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Multiple Choice
Q 88Q 88
When an investor risks buying into a bubble, the decision is usually based on:
A) fundamentals gathered by himself.
B) fundamentals gathered by his financial advisor.
C) an assumption that other investors who purchased the stock must have studied the fundamentals.
D) a conviction that fundamentals remain unchanged during the bubble.
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Multiple Choice
Q 89Q 89
The bubble that results from an informational cascade can in fact be rational since:
A) investors know that the bubble will yield a negative return.
B) investors early in the chain may have obtained information that increases the expected gain to an investor down the chain.
C) the risk is small, and only a few investors will underestimate that risk.
D) all of the above
Free
Multiple Choice
Q 90Q 90
The economists who design public policy often assume that: consumers and firms are:
A) fully rational and fully informed.
B) affected by loss aversion, framing, anchoring and other reference points that affect their behavior.
C) sometimes but not always irrational and largely uninformed.
D) neutral to public policy as they are in risk taking.
Free
Multiple Choice
Q 91Q 91
Figure 19.5.1
-Refer to Figure 19.5.1 above. If the pollutant at issue is carbon dioxide, CO2, the typical response suggested by policy analysts is:
A) an effluent fee.
B) a carbon tax.
C) an external fee.
D) a subsidy.
Free
Multiple Choice
Q 92Q 92
Figure 19.5.1
-Refer to Figure 19.5.1 above. If unregulated, the industry will produce:
A) Q1.
B) Q2.
C) Q3.
D) Somewhere between Q1 and Q3.
Free
Multiple Choice
Q 93Q 93
Figure 19.5.1
-Refer to Figure 19.5.1 above. To bring this industry to produce the socially optimal level of output, there must be a correction:
A) equal to the size of the MEC at Q1.
B) equal to the sum of MSC and MC.
C) sufficient to reduce output to Q3.
D) All of the above are equivalent.
Free
Multiple Choice
Q 94Q 94
It is possible to reduce emissions without intervention, only if:
A) the cost of emissions abatement would decrease.
B) the marginal cost of abatement is greater than the marginal benefit.
C) consumers were properly informed and incentivized.
D) producers would act in their own self-interest and produce the private market level of output.
Free
Multiple Choice
Q 95Q 95
In the design of public policy to reduce energy consumption, a good idea would be to:
A) let consumers learn about the benefits and take the necessary actions to reduce energy consumption.
B) educate consumers.
C) maintain the traditional approach of imposing corrective fees.
D) ration energy supply.
Free
Multiple Choice
Q 96Q 96
Figure 19.5.2
-Refer to Figure 19.5.2 above. Without awareness or persuasion about the social impact of energy consumption, the private market produces:
A) Q1.
B) Q2.
C) Q3.
D) Somewhere between Q1 and Q3.
Free
Multiple Choice
Q 97Q 97
Figure 19.5.2
-Refer to Figure 19.5.2 above. The shift in the MSC curve, from MSC to MSC' is the result of:
A) new technologies that allow firms to produce output at a lower cost.
B) government policies that impose reductions in emissions.
C) a tax on emissions.
D) education that makes consumers and firms would realize that they can save money by reducing their emissions of the pollutant.
Free
Multiple Choice
Q 98Q 98
Figure 19.5.2
-Refer to Figure 19.5.2 above. Once consumers and firms develop awareness of the benefits of reducing energy consumption,
A) a tax on emissions is no longer necessary.
B) a tax on emissions is still necessary but it would be lower than before.
C) a tax on emissions needs to be larger to obtain the socially optimal level of industry output.
D) taxes should turn to subsidies.
Free
Multiple Choice
Q 99Q 99
Which of the following statements best describe the textbook narrative on moral persuasion?
A) Moral persuasion is one way to reduce energy consumption, but such thing it is not utility maximizing.
B) Moral persuasion could reduce energy consumption and could enter in people's utility functions.
C) Highlighting the inherent moral obligation to save the environment has been demonstrated to have a weak effect on the reduction of energy consumption.
D) It is difficult to quantify the reduction in energy consumption caused by a raising of moral obligation.
Free
Multiple Choice
Q 100Q 100
To induce consumers to buy LED bulbs instead of incandescent bulbs, one strategy would be to:
A) describe the advantages of LED bulbs over incandescent bulbs.
B) display LED bulbs prominently but make incandescent bulbs less visible.
C) make incandescent bulbs available only upon request.
D) all of the above
Free
Multiple Choice
Q 101Q 101
After learning about behavioral economics, it is clear that:
A) we should dispense with the traditional economic theory.
B) traditional theory does not explain all consumer decisions, but it sheds light on many of them.
C) traditional theory would stay but take a second place behind behavioral economics.
D) including behavioral economics in an economic model would add unnecessary complexity.
Free
Multiple Choice