Question 1

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 2

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 3

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

Sales often create a reference point for consumers to compare prices and assess the value of a product. The perception of getting a discount or a good deal can also be a motivating factor for consumers to make a purchase.

Question 4

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 5

Figure 10-5
 
-Refer to Figure 10-5.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 11ea4843_717c_6e37_8763_133619f9df1c_TB4193_11 of a cookie, as indicated by the slope of the indifference curve at that point. Therefore, the best choice would be to trade one bar of chocolate for 11ea4843_717c_6e37_8763_133619f9df1c_TB4193_11 of a cookie, as it represents the amount that the individual is willing to give up of cookies in order to obtain one more bar of chocolate while still remaining on the same indifference curve.

Question 6

What is an indifference curve?

Accepted Answer

An indifference curve shows the different combinations of two goods that give the same level of utility or satisfaction to a consumer. Therefore, option B is the correct choice.

Question 7

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 8

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 while maintaining the same level of utility, meaning there is no loss in utility.

Question 9

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 10

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

Accepted Answer

If preferences are transitive and Dawson prefers pizza to hamburgers and hamburgers to hot dogs, it follows that she must also prefer pizza to hot dogs. This is because transitivity means that if A > B and B > C, then A > C. Therefore, if pizza is preferred to hamburgers and hamburgers are preferred to hot dogs, then pizza must be preferred to hot dogs. There is no option for Dawson to be indifferent among the three items or prefer hamburgers to pizza on some occasions because these would violate transitivity. Additionally, she cannot prefer hot dogs to pizza on some occasions because this would contradict her preference for hamburgers over hot dogs.

Question 11

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

Accepted Answer

Behavioral economics examines how people deviate from rational decision-making, often due to cognitive biases and emotional factors.

Question 12

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

The statement correctly describes the endowment effect. It is a well-documented behavioral bias in which people often assign a higher value to items they already possess compared to the value they would place on the same item if they did not own it. As a result, people often demand a higher price to sell a possession than they are willing to pay to acquire it.

Question 13

Figure 10-4
 
-Refer to Figure 10-4.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 enjoys science fiction movies more than Laurel.

Question 14

Explain the endowment effect.

Accepted Answer

The answer of Explain the endowment effect....

Question 15

The slope of an indifference curve

Accepted Answer

The slope of an indifference curve measures the marginal rate of substitution between the two goods in question. It represents the amount of one good a consumer is willing to give up in order to obtain an additional unit of the other good while remaining indifferent (maintaining the same level of utility).

Question 16

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 may have unrealistic expectations about their future studying behavior, such as assuming they will have more time or motivation in the future, which can lead to procrastination and poor academic performance.

Question 17

Figure 10-4
 
-Refer to Figure 10-4.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 10-4
 
-Refer to Figure 10-4.Best friends...

Question 18

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,...

Question 19

If preferences are transitive, indifference curves

Accepted Answer

Transitive preferences imply consistent ranking of bundles, leading to non-intersecting indifference curves, as intersection would violate the consistency of preferences.

Question 20

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 paid and cannot be recovered, therefore it cannot be changed or undone.

Quiz 10: Consumer Choice and Behavioral Economics