Question 1

Which of the following best describes the law of diminishing marginal utility?

Accepted Answer

As a consumer consumes more of a good or service, the additional satisfaction from each extra unit decreases.

Question 2

Suppose pizza costs $$2 per slice and Coke costs 1 $$per cup. If the marginal utility of the third slice of pizza is 10 and the marginal utility of the third cup of Coke is 15, which item should the consumer buy next to maximize utility?

Accepted Answer

Buy another cup of Coke, because $$\frac{MU_{Coke}}{P_{Coke}} = \frac{15}{1} = 15 is $$greater than $$\frac{MU_{Pizza}}{P_{Pizza}} = \frac{10}{2} = 5.$$

Question 3

Which of the following is NOT a condition for maximizing utility?

Accepted Answer

Purchasing only the good with the highest price.

Question 4

If the price of pizza falls from $$2.00 to 1.50 $$per slice, which two effects explain why the quantity demanded of pizza increases?

Accepted Answer

Income effect and substitution effect

Question 5

A Giffen good is characterized by which of the following?

Accepted Answer

An upward-sloping demand curve because the income effect outweighs the substitution effect for an inferior good.

Question 6

Which scenario best illustrates the concept of network externalities?

Accepted Answer

The usefulness of a social media platform increases as more people join and use it.

Question 7

In the context of behavioral economics, what is the endowment effect?

Accepted Answer

The tendency to be unwilling to sell a good you own, even for a price higher than you would pay to buy it.

Question 8

A consumer has $$10 to spend. Pizza costs 2 $$per slice and Coke costs $$1 per cup. Which combination exhausts the budget and satisfies the rule of equal marginal utility per dollar spent if $$\frac{MU_{Pizza}}{P_{Pizza}} = 5$$ and $$\frac{MU_{Coke}}{P_{Coke}} = 5$?

Accepted Answer

3 slices of pizza and 4 cups of Coke

Question 9

Which of the following is an example of a sunk cost?

Accepted Answer

The cost of a movie ticket you already purchased and cannot get a refund for.

Question 10

Suppose a consumer is choosing between bundles of pizza and Coke. At the optimal point, the indifference curve is tangent to the budget line. What does this imply about the slopes at that point?

Accepted Answer

The slope of the indifference curve equals the slope of the budget line.

Question 11

Which formula represents the rule of equal marginal utility per dollar spent for two goods, A and B?

Accepted Answer

$$\frac{MU_A}{P_A} = \frac{MU_B}{P_B}$$

Question 12

If a consumer ignores nonmonetary opportunity costs when making decisions, which behavioral economics mistake are they making?

Accepted Answer

Ignoring nonmonetary opportunity costs

Question 13

Which of the following best describes the substitution effect?

Accepted Answer

The change in quantity demanded due to a good becoming more or less expensive relative to other goods.

Question 14

Which real-world scenario illustrates the concept of fairness affecting consumer behavior?

Accepted Answer

NFL fans consider it unfair if the NFL raises ticket prices when demand increases, even though tickets are resold for much more.

Question 15

A consumer is faced with the following marginal utilities: $$MU_{Pizza} = 8$$, $$MU_{Coke} = 12$$, $$P_{Pizza} = 2$$, $$P_{Coke} = 1. $$What should the consumer do to maximize utility?

Accepted Answer

Buy more Coke, because $$\frac{MU_{Coke}}{P_{Coke}} = 12 is $$greater than $$\frac{MU_{Pizza}}{P_{Pizza}} = 4.$$

Question 16

Which behavioral economics concept explains why posting 'limit 10 items per customer' can cause people to buy more than they otherwise would?

Accepted Answer

Anchoring

Question 17

If a consumer's preferences are transitive, which of the following must be true?

Accepted Answer

If the consumer is indifferent between bundles X and Z, and X and Y, then they must also be indifferent between Y and Z.

Question 18

Which equation relates the marginal rate of substitution (MRS) to marginal utilities for pizza and Coke?

Accepted Answer

$$MRS = \frac{MU_{Coke}}{MU_{Pizza}}$$

Consumer Choice and Behavioral Economics: Utility, Demand, and Social Influences

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