Question 1

Suppose a consumer is deciding how to allocate a $$10 budget between pizza (costing 2 $$per slice) and Coke (costing $1 per cup). If the marginal utility of the third slice of pizza is 6 utils and the marginal utility of the fourth cup of Coke is 4 utils, which combination should the consumer purchase to maximize utility?

Accepted Answer

Buy more Coke and less pizza, because $$\frac{MU_{Coke}}{P_{Coke}} = \frac{4}{1} = 4 is $$greater than $$\frac{MU_{Pizza}}{P_{Pizza}} = \frac{6}{2} = 3.$$

Question 2

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

Accepted Answer

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

Question 3

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 4

A consumer is maximizing utility when which of the following conditions is met?

Accepted Answer

$$\frac{MU_{A}}{P_{A}} = \frac{MU_{B}}{P_{B}}$$ and the budget is exhausted.

Question 5

Which of the following is an example of a network externality?

Accepted Answer

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

Question 6

In the Ultimatum Game, why do recipients often reject offers that are less than 10% of the total amount?

Accepted Answer

Because people value fairness and are willing to sacrifice money to punish unfair offers.

Question 7

Which behavioral economics concept explains why people are reluctant to sell a good they own, even for a price higher than they would pay to buy it?

Accepted Answer

Endowment effect

Question 8

A consumer paid $$20 for a movie ticket but lost it before the show. The replacement ticket also costs 20. If $$the consumer decides not to buy another ticket because it feels like paying $40, which behavioral mistake are they making?

Accepted Answer

Failing to ignore sunk costs

Question 9

Suppose the price of Coke remains at $$1 per cup, but a consumer’s income increases from 10 to$$ $20. What happens to the budget constraint?

Accepted Answer

It shifts outward, allowing the consumer to buy more of both goods.

Question 10

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves never cross because preferences are transitive.

Question 11

At the optimal consumption point, what is true about the slope of the indifference curve and the budget constraint?

Accepted Answer

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

Question 12

If pizza is a normal good, what is the effect of a decrease in its price on quantity demanded, according to the income effect?

Accepted Answer

Quantity demanded increases because purchasing power rises.

Question 13

Which of the following is NOT a common mistake identified by behavioral economics?

Accepted Answer

Comparing marginal utility per dollar spent for all items

Question 14

A consumer is choosing between two bundles: Bundle A (3 slices of pizza, 4 cups of Coke) and Bundle B (2 slices of pizza, 8 cups of Coke). If the consumer is indifferent between these bundles, what does this imply?

Accepted Answer

Both bundles lie on the same indifference curve.

Question 15

Which real-world example best illustrates the concept of anchoring in consumer decision-making?

Accepted Answer

J.C. Penney’s use of 'regular' prices as a reference point for sales.

Question 16

If the marginal rate of substitution (MRS) between Coke and pizza is 2, what does this mean?

Accepted Answer

The consumer is willing to give up 2 cups of Coke for 1 additional slice of pizza.

Question 17

Which of the following could result in an upward-sloping demand curve for a good?

Accepted Answer

The good is a Giffen good, where the income effect outweighs the substitution effect.

Question 18

Which equation represents the rule of equal marginal utility per dollar spent for two goods, pizza and Coke?

Accepted Answer

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

Question 19

Which behavioral economics concept is illustrated when a store posts 'limit 10 items per customer' and customers buy more than they otherwise would?

Accepted Answer

Anchoring

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

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