Question 1

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

Accepted Answer

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

Question 2

Suppose you have a budget of $$10. Pizza costs 2 $$per slice and beer costs $1 per can. If the marginal utility of the third slice of pizza is 5 utils and the marginal utility of the fourth beer is 5 utils, which combination should you consume to maximize utility?

Accepted Answer

Consume either, since the marginal utility per dollar is equal: $$\frac{5}{2} = 2.5$$ utils per dollar for pizza and $$\frac{5}{1} = 5$$ utils per dollar for beer. You should consume more beer.

Question 3

If a consumer is maximizing utility, which of the following must be true?

Accepted Answer

$$\frac{MU_a}{P_a} = \frac{MU_b}{P_b}$$ for all goods a and b.

Question 4

Which of the following is an example of a non-monetary opportunity cost?

Accepted Answer

Missing out on $3,000 by using a Super Bowl ticket you could have sold for that amount.

Question 5

A consumer faces a choice between two goods: pizza and coke. The budget constraint is $$10, pizza costs 2 $$per slice, and coke costs $1 per can. If the consumer spends all their money on pizza, how many slices can they buy?

Accepted Answer

5 slices

Question 6

Which of the following statements about indifference curves is correct?

Accepted Answer

Indifference curves show all combinations of two goods that provide the same utility to the consumer.

Question 7

What does the slope of an indifference curve represent?

Accepted Answer

The marginal rate of substitution (MRS) between the two goods.

Question 8

If the price of pizza falls from $$2 to 1.50 $$per slice, what happens to the consumer's budget constraint?

Accepted Answer

It rotates outward, allowing the consumer to buy more pizza for the same budget.

Question 9

Which of the following is a Giffen good?

Accepted Answer

A good for which demand increases as its price increases, due to the income effect outweighing the substitution effect.

Question 10

Which of the following is NOT a common pitfall in decision-making identified by behavioral economics?

Accepted Answer

Always maximizing utility perfectly.

Question 11

Suppose a consumer is offered $$3,000 for a Super Bowl ticket they won in a lottery, but they refuse to sell it, even though they would not have paid 3$$,000 to buy it. What behavioral economics concept does this illustrate?

Accepted Answer

Endowment effect

Question 12

A consumer is deciding between going to a concert or visiting a friend in the hospital. They already bought a non-refundable concert ticket. What should they consider when making their decision?

Accepted Answer

The price of the concert ticket as a sunk cost, which should not affect their decision.

Question 13

Which of the following best describes a network externality?

Accepted Answer

A situation where the usefulness of a product increases as more people use it.

Question 14

Why might a firm avoid raising prices during a temporary surge in demand, such as after a natural disaster?

Accepted Answer

Because consumers may perceive the price increase as unfair and stop buying from the firm in the future.

Question 15

If a consumer's marginal utility per dollar spent on pizza is higher than that for beer, what should the consumer do to maximize utility?

Accepted Answer

Buy more pizza and less beer.

Question 16

Which of the following is true about the market demand curve?

Accepted Answer

It is the horizontal sum of all individual demand curves.

Question 17

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

Accepted Answer

Continuing to watch a movie you dislike because you already paid for the ticket.

Question 18

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

Accepted Answer

If the consumer prefers A to B and B to C, then the consumer must prefer A to C.

Question 19

Which of the following best explains why people often tip waiters even when they are unlikely to return to the restaurant?

Accepted Answer

Because they want to be treated fairly and to treat others fairly, even if it does not benefit them financially.

chapter 10 microecon

Study Guide - Practice Questions

Study Guide - Flashcards