Q&A Hero

Q: Explain the endowment effect.

Q: 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.

Q: A sunk cost is a cost that has already been paid and cannot be recovered.

Q: One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Q: A common mistake made by consumers is the failure to take into account the monetary costs of their actions.

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

Q: 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.

Q: A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

Q: Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay. If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained? A) You expect to receive greater utility from attending the playoff game than you received from buying the ticket. B) by the endowment effect C) by the law of diminishing marginal utility D) The income effect from the increase in the price of the ticket from $50 to $100 was greater than the substitution effect.

Q: Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was the maximum price he was willing to pay. On the day of the performance of the play Adam refuses to sell the ticket for $150. How would behavioral economists explain Adam's refusal to sell his ticket? A) Adam's tastes had changed from the time he bought the ticket to the time of the performance of the play. B) When Adam bought the ticket he was being unrealistic about his future behavior. C) The endowment effect explains Adam's actions. People like Adam seem to value things that they have more than the things they do not have. D) Adam's income probably increased between the time he bought the ticket and the day of the play's performance.

Q: Wilbur Rickhiser, a financial advisor, recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss. Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report. Many of my clients in this situation will hold the stock, hoping the price will later rise above $50. In most cases like this the price does not rise and may even fall. You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice? A) People sometimes buy stocks because other people are buying them or they want to appear to be fashionable. B) People sometimes make mistakes when they buy stocks because of the endowment effect. C) People sometimes make mistakes when they buy stocks or when they buy goods and services: they ignore the monetary opportunity costs of their choices. D) People often fail to ignore the sunk costs of their decisions. The cost of the stock bought at $50 per share is a sunk cost.

Q: Under J.C. Penney's everyday low pricing policy, the everyday low prices A) ended up being the highest prices ever charged by the company. B) were always lower than the sale prices under the previous policy. C) were not actually charged every day, but only once a month during half-off sales. D) ended up being higher than the sale prices under the previous pricing policy.

Q: Health Clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year. Which of the following is the best explanation for this behavior? A) Some health club members suffer minor injuries that prevent them from working out. B) Some people are overly optimistic about their future behavior. C) Some people fail to treat their membership fees as sunk costs. D) Some members receive utility from activities they believe are popular.

Q: Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his website, despite the nearly $200,000 he had invested in his education. In making his decision, the $200,000 he spent on his education A) should be ignored since it represents a sunk cost. B) should be considered since it is money he has spent and needs to recoup. C) should be ignored only if Kim can earn more than $200,000 by running his website. D) should be considered since it is money he could have used to invest in his website.

Q: Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a long-time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it. Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero. This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior? A) the difference between implicit and explicit costs B) the scarcity of home run baseballs hit by Ted Williams C) the endowment effect D) how social influences can affect consumption choices

Q: Suppose you pre-ordered a non-refundable movie ticket to X-Men: Days of Future Past. On the day of the movie you decide that you would rather not go to the movie. According to economists, what is the rational thing to do? A) Since the cost of the movie ticket is a sunk cost, it should not influence your decision. Your decision should be based solely on whether you want to see the movie or not. B) You should not waste resources. Since you have paid for the ticket you should watch the movie. C) Your should go to the movie to minimize your losses. D) You should go to the movie to maximize your utility.

Q: A sunk cost is A) another term that means opportunity cost. B) a term used to describe the cost of capital that the owners of a firm sink into their business. C) the highest valued alternative that must be given up to engage in an activity. D) a cost that has already been paid and cannot be recovered.

Q: Costs that have already been incurred, and which cannot be recovered, are known as A) short-run fixed costs. B) implicit costs. C) unavoidable costs. D) sunk costs.

Q: What is the endowment effect? A) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than what they would be willing to pay to buy the good if they did not already own it B) the tendency of people to be unwilling to sell something they already own because of its sentimental value C) the tendency of people to overstate the value of a good they already own even though similar items can be purchased at a lower price D) the sum total of assets that a person has acquired over the years

Q: Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of A) rational consumer behavior. B) the endowment effect. C) the fallacy of composition. D) the failure to ignore sunk costs.

Q: Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are an example of A) the tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay if they did not already own it. B) the tendency for consumers to account for monetary costs but to ignore sunk costs. C) consumers placing a high value on a product because it makes them appear to be fashionable. D) the law of demand.

Q: Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400. Krueger found that (a) 94 percent of those surveyed would not have paid $3,000 for their tickets, and (b) 92 percent of those surveyed would not have sold their tickets for $3,000. These results are evidence of A) the high value fans place on watching the Super Bowl in person, rather than on television. B) the failure of consumers to take into account nonmonetary opportunity costs. C) the failure of consumers to ignore sunk costs. D) consumers being overly optimistic about their future behavior.

Q: Which of the following is a common mistake made by consumers? A) taking into account the implicit costs of an activity B) ignoring sunk costs C) being overly optimistic about their future behavior D) being overly pessimistic about their future behavior

Q: The highest-valued alternative that must be given up to engage in an activity is the definition of A) utility. B) implicit cost. C) opportunity cost. D) economic sacrifice.

Q: One reason that consumers and businesses might not act rationally is A) it is difficult to obtain enough information about the elasticities of demand and supply. B) they may not realize their actions are inconsistent with their goals. C) consumer tastes change constantly. D) they do not always value fairness when they make choices.

Q: Behavioral economics refers to the study of situations A) where consumers and firms appear to make choices that are appropriate to reach their goals. B) where consumers and firms appear to value fairness when they make choices. C) where consumers and firms disobey the laws of demand and supply. D) where consumers and firms do not appear to be making choices that are economically rational.

Q: A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called A) behavioral economics. B) irrational economics. C) social economics. D) new wave economics.

Q: Behavioral economics helps explain why customers ________ at J.C. Penney. A) favored the policy of everyday low prices and not sales and coupons B) favored sales and coupons and not the policy of everyday low prices C) were equally happy with sales and coupons and the policy of everyday low prices D) responded negatively to both sales and coupons and the policy of everyday low prices

Q: A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices, even for goods they buy regularly. A) no evidence B) substantial evidence C) little evidence D) no reason to believe

Q: Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim's Website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his Website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a A) rational decision to ignore these sunk costs. B) poor decision since he had already invested his time and money on his medical career. C) poor decision since doctors are in greater demand than bloggers. D) hasty decision by not waiting to recoup his financial investment before giving up his medical career.

Q: Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation? A) People measure the value of a good in terms of its purchase price. B) Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value. C) If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions. D) Sunk costs have a higher opportunity cost than costs that can be recovered.

Q: Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme. Ramotswe why does she not simply give away the new pair, she said: "But I paid so much for them." Grace's behavior A) is rational: she should not discard a valuable item. B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not. C) supports the endowment effect which states that ownership of an item makes it more valuable. D) is rational because the more you pay for an item the more valuable it is.

Q: Which of the following is not a common mistake made by consumers? A) the failure to take into account the implicit costs of an activity B) the failure to ignore sunk costs C) being overly optimistic about their future behavior D) being overly pessimistic about their future behavior

Q: Which of the following is a common mistake consumers commit when they make decisions? A) They take into account nonmonetary opportunity costs but ignore monetary costs. B) They are overly pessimistic about their future behavior. C) They fail to ignore sunk costs. D) They sometimes value fairness too much.

Q: Sunk costs A) are costs associated with repairing something you already own. B) are important for optimal decision making. C) are costs that have already been paid and cannot be recaptured in any significant way. D) are costs that firms sink into marketing.

Q: Most film processing companies have a policy of printing every picture on a roll of film and allowing customers to request a refund for pictures that were not clearly developed. The companies do this knowing that most customers do not ask for refunds. This is an example of consumers A) failing to ignore sunk costs. B) being overly optimistic about their future behavior. C) not taking nonmonetary opportunity costs into account. D) not making themselves aware of the policy regarding refunds.

Q: Psychologists Daniel Kahneman and Amos Tversky conducted the following experiments by asking a sample of people the following questions: Scenario A: "Imagine that you have decided to see a play and paid the admission price of $10 per ticket. As you enter the theater you discover that you have lost the ticket. The seat was not marked and the ticket cannot be recovered. Would you pay $10 for another ticket?" Scenario B: "Imagine that you have decided to see a play where admission is $10 per ticket. As you enter the theater you discover that you have lost a $10 bill. Would you still pay $10 for a ticket for the play?" As long as additional tickets are available, there's no meaningful difference between losing $10 in cash before buying a ticket, and losing the $10 ticket after buying it. In both cases, you are out $10. Yet, far more subjects (88 percent) in Scenario B say they would pay $10 for another ticket and see the play while in Scenario A, only 46 percent of the subjects say they would be willing to spend another $10 to see the play. Which of the following is the best explanation for the results of the experiment? A) The endowment effect applies in Scenario A since people already own the ticket and therefore it is more valuable but this is not so in Scenario B. B) In Scenario B, people had not anticipated spending an additional $10 so in effect the price of the ticket is $20 and not $10 whereas in Scenario A, the price of the ticket is still $10. C) In Scenario A, people make an immediate connection between the lost ticket and the play and feel poorer by incorrectly assigning a greater value to the value of the ticket whereas in ScenarioB, they do not make the connection between the lost $10 bill and the play. D) The net benefit derived from watching the play is lower in Scenario A where the effective cost is $20 compared to the net benefit in Scenario B.

Q: Consider the following hypothetical scenarios: Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store, located about a 20-minute drive away. Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45. The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store, located about a 20-minute drive away. Based on standard economic theory, under which scenario would you make the 20-minute trip to the other store? A) Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial B) Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) C) in either scenario if I think a $15 savings is worth the 20-minute trip D) in none of these scenarios if I think the $15 saving is not worth the 20-minute trip E) C and D are correct answers.

Q: The average price of gasoline in your neighborhood is $3.53 per gallon. Your neighbor, Diana tells you that you can "save a lot" by frequenting a gas station 20 miles outside your neighborhood where the price of gasoline is $3.46 per gallon However, she cautions you that there usually long lines at that station. Is her suggestion beneficial to you? A) Yes, since gasoline is a necessity for car owners, the total cost savings would be relatively substantial. B) No, if one factors in the non-monetary opportunity costs (driving time and waiting in line), it could prove more costly to go to the lower-priced gasoline station. C) Yes, the lower price of gasoline at the rival station increases my purchasing power and enables me to consume more of other goods. D) No, my friend is misled; clearly, the lower priced gasoline must be of inferior quality and could damage vehicles.

Q: Which of the following demonstrates the endowment effect? A) Whelan inherits a cottage in Cape Cod from his grandfather and is unwilling to sell it for sentimental reasons. B) Robert Pattinson commands a premium in the movie industry because he is endowed with dashing looks. C) Isabella was not willing to part with her "Robert Pattinson" poster although she was offered $100 for it, a sum greater than what it costs to purchase another such poster. D) If you received a good as a gift, you are less likely to attach a monetary value to the good.

Q: If you exhibit the endowment effect as a decision maker, then you are A) deciding on the basis of sunk costs. B) buying something you can't really afford because you expect to save in the future. C) ignoring non-monetary opportunity costs. D) consuming based on celebrity endorsements.

Q: The endowment effect suggests that that people A) have a strong attachment to their entitlement, regardless of whether they paid to acquire them. B) have a strong sense of fairness. C) are concerned about the welfare of others. D) act in ways to distort market prices.

Q: What is the endowment effect? A) the phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increase efficiency B) the tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services C) the tendency of people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it. D) the tendency of firms to use celebrities endowed with good looks to promote their products

Q: The observation that people tend to value something more highly when they own it than when they don't is called the A) wealth effect. B) endowment effect. C) path dependent effect. D) endorsement effect.

Q: What is behavioral economics? A) the study of how people make wealth-maximizing decisions B) the study of how people behave in the face of scarcity C) the study of situations in which people act in ways that are not economically rational D) the study of how people make decisions at the margin

Q: Professor Parallax chooses two students in his economics class, Jasmine and Cassandra, to participate in the ultimatum game. He chooses Jasmine to be the allocator and Cassandra to be the recipient. He gives Jasmine $50 and as the allocator, she gets to decide how to split the money with Cassandra. If Cassandra decides to accept the amount allocated to her by Jasmine, both students get to keep the money. If Cassandra decides to reject her allocation, neither student gets to keep the money. How much will each student end up with if each student acts as if fairness is important? How much will each student end up with if only Cassandra acts as if fairness is important? How much will each student end up with if neither student cares about fairness?

Q: Economists have noted that businesses of a certain type tend to congregate geographically, attracting workers with skills in those fields. This, in turn, lures more firms seeking employees with those skills. Some examples include commercial banking, software development, and the automobile industry. What mechanism is at work here? Briefly explain how the mechanism works to the advantage of employers and employees.

Q: Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result. How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

Q: Explain the concept of network externalities.

Q: Music writer Anthony Kuzminski praised rock star Tom Petty in a 2007 article in the online Unrated Magazine. Kuzminski wrote: "Something Petty never can get enough credit for is his fan-friendly attitude. He kept ticket prices for [his concerts] at $50 when other acts this summer are charging upwards of $100 for stadium gigs. Petty could charge more, but he doesn't see the point. He has stated time and time again he still makes millions when he's on the road, regardless of his ticket prices. He is the last of the fan friendly rock stars out there." Use economic reasoning to write a rationale for Tom Petty's decision to charge prices for his band's ("Tom Petty and the Heartbreakers") concerts that are less than market clearing prices. Source: Anthony Kuzminski, "Tom Petty & The Heartbreakers at the Vic Theater" http://www.unratedmagazine.com/

Q: List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

Q: Why might network externalities result in products that contain inferior technologies?

Q: A network externality causes firms to sacrifice profits in the short run in order to satisfy their customers and increase their long-run profits.

Q: Results of the ultimatum game indicate that most people value fairness enough that they will refuse to participate in a transaction they consider unfair, even if they are worse off financially as a result.

Q: The ultimatum game and the dictator game are used in economic experiments to test whether fairness is an important influence on consumer decision-making.

Q: The iPod is a product without any significant network externalities.

Q: Economists have shown that when the ultimatum game experiment is carried out, both allocators and recipients act as if fairness is important.

Q: A network externality refers to a situation in which the usefulness of a product decreases with the number of consumers who use it.

Q: In a survey of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler asked their opinion of a hardware store's decision to A) go out of business because a larger hardware store opened in the same city; 82 percent of those surveyed believed it was unfair for the larger store to compete with the smaller store. B) raise the price of snow shovels the day following a snowstorm; 82 percent of those surveyed believed this was unfair. C) sell tickets to sporting and cultural events at prices higher than prices paid at the ticket windows for the same events; 82 percent of those surveyed believed this was unfair. D) remain in business even though the store was not making an economic profit; 82 percent of those surveyed believed it would be unfair for the store to go out of business if there no other hardware stores in the same area.

Q: In their surveys of consumers, Daniel Kaheman, Jack Knetsch and Richard Thaler found that A) most people considered it unfair for firms to raise their prices because of an increase in their costs, but fair to raise their prices after an increase in demand. B) most people considered any increase in price to be unfair as it led to an increase in profits. C) most people believed that low income people were hurt most by increases in prices. D) most people considered an increase in price by firms following an increase in their costs to be fair but believed it was unfair for firms to raise their prices because of an increase in demand.

Q: Many people leave their servers tips in restaurants, even when they are not likely to visit the restaurant again. This is evidence that A) people would rather pay for good service at an inexpensive restaurant than pay higher prices and receive poor service at an expensive restaurant. B) people enjoy eating at restaurants more than eating at home. C) people treat others fairly even if doing so makes them worse off financially. D) there has been an improvement in the service people receive in restaurants over time, partly because the restaurant industry has become more competitive.

Q: Economists have used the ultimatum game and the dictator game in experiments designed to determine A) whether consumers care about fairness when they make decisions. B) whether consumers believe it is fair for producers to raise the price of a product for which there is excess demand. C) whether consumers understand the difference between implicit costs and explicit costs. D) whether consumers understand the rule of equal marginal utility per dollar spent.

Q: In an experiment that employed the dictator game,economists at Cornell University gave student "allocators" the option of dividing $20 in only two ways (a) $18 for themselves and $2 to another student, or (b) $10 for themselves and $10 to another student. What was one result from this experiment? A) Most allocators chose to give themselves $18 and $2 to the other students. B) Most of the students who were not allocators did not like having someone else make decisions for them. C) A majority of the female allocators chose option (a); a majority of the male allocators chose option (b). D) Most of the allocators apparently valued acting fairly.

Q: All but one of the following economists were awarded a Nobel prize for their contributions to experimental economics and their explorations of the influence fairness has on consumer decision-making. Which economist did not receive a Nobel Prize for this work? A) Vernon Smith B) Alan Krueger C) Daniel Kahneman D) Maurice Allais

Q: During its run on Broadway, the play The Producers regularly sold out all available tickets at the St. James Theater. The theater could have raised ticket prices from $75 to $125 and still sold all available tickets but chose not to do so. The best explanation for this decision is A) theater owners are unaware of the elasticity of demand for Broadway shows. B) theater owners do not want to raise their tickets on weekends, when demand is high, and then have to lower prices during the week, when demand is lower. C) firms sometimes give up profits in the short run to keep their customers happy and increase their profits in the long run. D) theater owners are not motivated to maximize their profits.

Q: Many airlines have not reduced or eliminated fuel surcharges despite the price of oil dropping. A logical reason for this is that the decline in fuel prices ________ the supply of airline tickets while at the same time the demand for airline tickets ________, so airline ticket prices still increased. A) decreased; increased B) decreased; decreased C) increased; increased D) increased; decreased

Q: The quantity demanded of tickets to the Super Bowl is always greater than the than the quantity supplied. Which of the following in the best explanation why the National Football League does not raise the price of tickets to the level where the quantity demanded equals the quantity supplied? A) Raising the price would reduce the demand for tickets; there would then be a surplus and the game would not sell out. B) The cost of raising the price and printing new tickets would exceed the revenue the NFL would receive from higher ticket prices. C) The demand for Super Bowl tickets is elastic; raising the price would reduce total revenue. D) The NFL is concerned that raising ticket prices would be considered unfair.

Q: ________ is an experiment that tests the significance of fairness in consumer decision making. A) The fairness challenge B) The consumer choice paradigm C) The ultimatum game D) The Giffen paradox

Q: Maurice Allais, Reinhard Selten and Vernon Smith all were awarded the Nobel Prize in Economics in part because A) of their work with experimental economics. B) they discovered the first example of a Giffen good. C) of their work on the substitution and income effects of price changes. D) they proved that external economies would lead to market failure.

Q: Some economists have suggested that network externalities result in consumers being locked into the use of products with inferior technologies. Economists Stan Leibowitz and Stephen Margolis have studied cases that have been cited as examples of this and found A) there is no convincing evidence that the alternative technologies were superior. B) consumers sometimes do become locked into the use of products with inferior technologies. C) that in all of these cases network externalities resulted in market failure. D) that consumers use products with inferior technologies when their prices are lower than products with superior technologies.

Q: All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs. Which of the following isnot a possible consequence of path dependency and switching costs? A) Consumers may get locked into using products with inferior technology. B) market failure C) diseconomies of scale D) Government intervention may be necessary in affected markets in order to improve economic efficiency.

Q: Some economists have argued that path dependence and switching costs can lead to market failure. Which of the following is an example of this argument? A) Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity. B) A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3,000 even though he would not have paid $3,000 for a ticket if he had not won the lottery. C) While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself. D) VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.

Q: An advantage of Microsoft windows is its compatibility with the widest range of hardware and software. The dominance of Windows is self-reinforcing: hardware and software manufacturers ensure that their products are compatible with Windows in order to have access to the large number of Windows users. Which principle best describes this scenario? A) endowment effects B) endorsement effects C) economies of scale D) network externalities

Q: The order of the letters along the rows of computer keyboards could be changed to allow users to type faster, but this would inconvenience the vast majority of people who learned to type with the current keyboard layout. The costs of switching to a new layout make this change unlikely. This is an example of A) path dependency. B) how social influences overwhelm the substitution effect of a price change. C) how the elasticity of demand for typewriters has been affected by externalities. D) how consumers sometimes do not behave rationally.

Q: Which of the following is used to explain why a consumer's willingness to buy a cell phone increases as the number of other people who own and use cell phones increases? A) network externalities B) market failure C) diminishing marginal utility D) the income effect of a price change

Q: Which of the following refers to the increase in the usefulness of a product as the number of consumers who use it increases? A) positive externalities B) network externalities C) external marginal utility D) the impact of celebrity endorsements

Q: Article Summary The article describes three key ways startup companies can get the most benefit from celebrity endorsements. One way is choosing a celebrity that can bring credibility to the company and then incorporating the celebrity into the company's marketing strategy. Second, get public relations value from the celebrity by offering exclusive interviews, contests, and photos and videos of the celebrity with the product. Finally, make sure to choose a celebrity who will represent the product at all times, giving the product maximum exposure. Source: Kevin Tighe II, "3 Ways Startups Can Turn Celebrity Endorsements Into Big Gains," Forbes, March 8, 2013. Refer to the Article Summary. One explanation for the increase in product sales because of celebrity endorsements is that people seem to receive ________ from goods they believe are popular. A) more utility B) diminishing utility C) greater network externalities D) increased path dependency

Q: Article Summary The article describes three key ways startup companies can get the most benefit from celebrity endorsements. One way is choosing a celebrity that can bring credibility to the company and then incorporating the celebrity into the company's marketing strategy. Second, get public relations value from the celebrity by offering exclusive interviews, contests, and photos and videos of the celebrity with the product. Finally, make sure to choose a celebrity who will represent the product at all times, giving the product maximum exposure. Source: Kevin Tighe II, "3 Ways Startups Can Turn Celebrity Endorsements Into Big Gains," Forbes, March 8, 2013. Refer to the Article Summary. Economists refer to an increase in sales due to celebrity endorsements as being the result of A) network externalities. B) the endowment effect. C) social influence. D) the ultimatum game.

Q: Economists Gary Becker and Kevin Murphy are associated with which of the following? A) the discovery of the first example of a Giffen good B) They have argued that social factors are not important in explaining the choices consumers make. C) Consumers appear to receive utility from consuming goods they believe are popular. D) They discovered that price changes have both income and substitution effects.

Q: Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make? A) Economists formerly believed they were very important but now they believe they are not important. B) Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. C) Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. D) Economists traditionally believed they were unimportant, but many economists now believe social factors are important.