Question 1

Suppose a consumer derives the following total utility from consuming slices of pizza: 0 slices = 0 utils, 1 slice = 20 utils, 2 slices = 36 utils, 3 slices = 48 utils, 4 slices = 54 utils, 5 slices = 52 utils, 6 slices = 51 utils. What is the marginal utility of the fourth slice of pizza?

Accepted Answer

$$6$$

Question 2

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

Accepted Answer

As a consumer consumes more of a good, the marginal utility from each additional unit decreases.

Question 3

A consumer has $$10 to $$spend. Pizza costs $$2$$ per slice and Coke costs $$1$$ per can. If the marginal utility of the third slice of pizza is $$8$$ and the marginal utility of the fourth can of Coke is $$4$$, which should the consumer buy next to maximize utility?

Accepted Answer

Either good, because the marginal utility per dollar is equal for both.

Question 4

If the price of pizza falls from $$2 to$$ $$1.50$$ per slice, which of the following best describes the substitution effect?

Accepted Answer

The consumer will buy more pizza because pizza is now cheaper relative to Coke.

Question 5

Which of the following is an example of the income effect?

Accepted Answer

A consumer buys more pizza because the price of pizza falls, increasing their effective purchasing power.

Question 6

Suppose a good is a Giffen good. What must be true about the income and substitution effects for this good?

Accepted Answer

The income effect is larger than the substitution effect and the good is inferior.

Question 7

Which of the following best describes a network externality?

Accepted Answer

The usefulness of a product increases as more people use it.

Question 8

In the ultimatum game, why do recipients often reject offers they consider unfair, even if it means they receive nothing?

Accepted Answer

Because they value fairness and are willing to sacrifice money to punish unfairness.

Question 9

Which of the following is an example of the endowment effect?

Accepted Answer

A consumer is willing to pay $$50$$ for a concert ticket, but after receiving one, refuses to sell it for $$100.$$

Question 10

A consumer paid $$20$$ for a movie ticket but lost it before entering the theater. The movie is not sold out, and another ticket costs $$20. If $$the consumer decides not to buy another ticket because they feel the movie would now cost $$40$$, which behavioral economics mistake are they making?

Accepted Answer

Failing to ignore sunk costs

Question 11

Which of the following is an example of a 'nudge' in behavioral economics?

Accepted Answer

Automatically enrolling employees in a retirement plan unless they opt out

Question 12

Suppose Dave's indifference curve for pizza and Coke is tangent to his budget line at bundle B. What does this imply about Dave's consumption at this point?

Accepted Answer

Dave is maximizing his utility given his budget constraint.

Question 13

If the marginal utility of pizza is $$10$$ and the price of pizza is $$2$$, while the marginal utility of Coke is $$5$$ and the price of Coke is $$1$$, what should the consumer do to maximize utility?

Accepted Answer

Either good, because the marginal utility per dollar is equal for both.

Question 14

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves represent combinations of goods that provide the same utility.

Question 15

At the optimal consumption bundle, which of the following must be true?

Accepted Answer

$$\frac{MU_{pizza}}{P_{pizza}} = \frac{MU_{coke}}{P_{coke}}$$

Question 16

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

Accepted Answer

Always maximizing utility by equalizing marginal utility per dollar

Question 17

A consumer is influenced to buy more of a product when a sign says 'limit 10 per customer.' Which behavioral economics concept does this illustrate?

Accepted Answer

Anchoring

Question 18

If a consumer's income increases and they buy more pizza and more Coke, what type of goods are pizza and Coke for this consumer?

Accepted Answer

Normal goods

Question 19

Suppose the slope of Dave's budget line is $$-2$$ and the marginal rate of substitution (MRS) at his optimal bundle is $$2. $$What does this imply?

Accepted Answer

Dave is maximizing his utility.

Question 20

Which of the following real-world business practices is most closely related to the concept of fairness in consumer choice?

Accepted Answer

A company raising prices only when its costs increase, not when demand increases.

Ch.10 Consumer Choice and Behavioral Economics: Utility, Demand, and Decision-Making

Study Guide - Practice Questions

Study Guide - Flashcards