Q&A Hero

Q: Traditionally, economists have considered culture, customs, and religion as A) very important influences on the choices consumers make. B) relatively unimportant factors in explaining the choices consumers make. C) important influences in explaining consumer choices in command economies but less important in market economies. D) subject to normative economic analysis rather than positive economic analysis.

Q: Economists have used ________ and________ in experiments designed to determine whether consumers care about fairness when they make decisions. A) Giffen goods; luxury goods B) the income effect; the substitution effect C) the ultimatum game; the dictator game D) network externalities; the endowment effect

Q: In the ultimatum game, allocators usually offer recipients at least a 40 percent share of the money, and recipients almost always reject offers of less than a 10 percent share. Which of the following does not explain why allocators offer recipients a relatively generous share and why recipients reject meager offers? A) Fear of arousing outrage and abhorrence could influence economic decisions. B) People can and often do reject offers that offend their sense of fairness even if doing so means taking a monetary loss. C) Some people are careful not to engage in economic behavior that might offend and alienate others. D) Allocators can count on recipients to ignore all considerations except financial benefit.

Q: Which of the following is an experiment which tests whether fairness is important in consumer decision making? A) the fair trade principle B) the ultimatum game C) the preferential treatment game D) the behavioral experiment

Q: Jamal, Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala, a popular new Japanese restaurant. It is possible that some of the people in line won't be served at all before the restaurant closes. Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a. In situations where consumption takes place publicly, demand for the product is also influenced by how many other people are buying the product. Consequently, a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity. b. Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers. c. The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits. A) a only B) a and b only C) a and c only D) a, b, and c

Q: For which of the following products is social influence likely to have the greatest impact? A) toothpaste B) restaurants C) high-blood pressure medication D) school textbook

Q: Research by Daniel Kahneman, Jack Knetch, and Richard Thaler has shown that companies like airlines were explicitly able to include a fuel surcharge in their prices because A) consumers had no choice but to pay the price of the surcharges due to the lack of competition in the industry. B) a government-imposed price ceiling on airline ticket prices left the airlines not other way to cover the increase in costs. C) adding a separate fuel surcharge to the price of airline tickets did not actually increase the price of the tickets. D) consumers see it as fair for firms to raise prices after an increase in costs.

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 A) shifted the supply curve for airline tickets to the left, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices did not decline. B) shifted the supply curve for airline tickets to the right, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices still increased. C) shifted the supply curve for airline tickets to the right, and at the same time an increase in demand for airline tickets shifted the demand curve to the right, so prices still increased. D) shifted the supply curve for airline tickets to the left, and at the same time a decrease in demand for airline tickets shifted the demand curve to the left, so prices did not decline.

Q: Many economists do not believe that network externalities lock consumers into the use of products that have technology inferior to other, similar products. These economists believe that A) consumers are always rational. B) in practice, the gains from using a superior technology exceed the losses consumers incur from switching costs. C) there is no good evidence that switching costs exist. D) the government will prevent products with inferior technology from being sold to consumers.

Q: A standard which came to the market first, such as the QWERTY letter layout in typewriters, can become entrenched (this layout is still used in computer keyboards today). What is this phenomenon called? A) network externalities B) path dependency C) sunk cost D) comparative advantage

Q: A good is path dependent when A) consumers get utility from consuming goods that others are consuming, such as restaurants. B) the first technology that was adopted has an advantage over a better technology that came later. C) people who move location follow the path of people who moved before them. D) it can only be used in one way.

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

Q: All of the following products are most likely to have significant network externalities except A) cat food. B) cell phones. C) popular board games. D) fax machines.

Q: A significant downside to network externalities is that A) there may be large switching costs to consumers of changing products so that consumers end up using products with inferior technologies. B) firms may network with unethical suppliers or distributors. C) the costs of hiring celebrity endorsements may be very high. D) there may be large switching costs to firms changing technologies.

Q: Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology. A) external B) implicit C) switching D) marginal

Q: A network externality occurs when A) there is production cost savings from being networked with suppliers. B) there is production cost savings from being networked with buyers. C) the usefulness of a good is affected by how many others use the good. D) the usefulness of a good is affected by celebrities who use the good.

Q: Firms pay famous individuals to endorse their products because A) apparently demand is affected not just by the number of people who use a product but also by the type of person that uses the product. B) the firms are irrational and are wasting advertising expenditures. C) famous people obviously know what are the best goods and services. D) famous people only consume high quality products.

Q: Identify the one statement that does not demonstrate how social effects influence consumer choice. A) Students in an Economics class are required to purchase a textbook assigned by the professor. B) There is utility gained from consuming goods or services that others are consuming. C) Some products that people consume are determined by the social popularity of the products. D) Companies such as Zappos.com and Netflix invite their consumers to write reviews about their experience with their products which are then posted on the internet for others to see.

Q: Which of the following does not explain why consumers buy products that many other consumers are already buying? A) technology B) the satisfaction people derive by being viewed as "fashionable" C) cost-effective way to gather information about a product D) differences in tastes and preferences

Q: Consider a good whose consumption takes place publicly. Your decision to buy that good depends A) both on the characteristics of the product and on how many other people are buying the good. B) only on the characteristics of the good. C) only on how many other people buy the good. D) only on the price of the good.

Q: What is the common feature displayed by the following items? a. eating in a newly opened "fusion" cuisine restaurant b. attending a Red Sox game in Fenway Park c. wearing Lucky Brand designer jeans A) They are all highly inelastic goods. B) The consumption of these goods takes place privately. C) The consumption of these goods takes place publicly. D) They tend to be consumed by better educated people.

Q: Consider the following factors: a. culture b. religion c. customs d. prices e. income Which of the factors above are likely to influence the choices consumers make? A) a, d, and e only B) all the factors except b C) all the factors except c D) d and e only E) all the factors listed

Q: What did economists Robert Jensen and Nolan Miller determine must be true for a good to be a Giffen good, where the income effect is larger than its substitution effect?

Q: Describe the demand curve for a Giffen good.

Q: What must be true in terms of the income effect, the substitution effect, and the type of good for the good's demand curve to be upward sloping?

Q: What is a Giffen good?

Q: The only Giffen goods that have been identified so far in the real world are luxury goods.

Q: The demand for a Giffen good slopes upward.

Q: The income effect results in consumers increasing the quantity of normal goods demanded when the price falls.

Q: The demand curve for a luxury good is upward-sloping.

Q: The demand curve for an inferior good can never be downward-sloping.

Q: The income effect of a price increase for a Giffen good outweighs the substitution effect.

Q: A Giffen good could be either a normal good or an inferior good.

Q: Each price-quantity combination on a consumer's demand curve shows the utility-maximizing quantity at the given price.

Q: For a demand curve to be upward sloping, the good would have to be an inferior good, and A) the income effect would have to be larger than the substitution effect. B) the income effect would have to be smaller than the substitution effect. C) the income effect would have to be equal to the substitution effect. D) the income effect and the substitution effect would have to be nonexistent.

Q: Goods with upward sloping demand curves are referred to as A) Marshall goods. B) Giffen goods. C) substitute goods. D) luxury goods.

Q: Figure 10-2 Figure 10-2 represents the demand for ice cream cones. Refer to Figure 10-2. When the price of ice cream cones increases from $2 to $3, quantity demanded decreases from 4 ice cream cones to 3 ice cream cones. This change in quantity demanded is due to A) the price and output effects. B) the income and substitution effects. C) the law of diminishing marginal utility. D) the fact that marginal willingness to pay falls.

Q: Figure 10-2 Figure 10-2 represents the demand for ice cream cones. Refer to Figure 10-2. Which of the following statements is true? A) Points a and b are the utility-maximizing quantities of ice-cream cones at two different prices of ice-cream. B) Points a and b may not necessarily be the utility-maximizing quantities of ice-cream cones at two different prices because we have no information on the consumer's budget or the price of other goods. C) Point a could be a utility-maximizing choice if the price is $3 but point b may not be because we have no information on the marginal utility per dollar when price changes. D) Points a and b are derived independently of the utility-maximizing model.

Q: The income effect due to a price decrease will result in an increase in the quantity demanded for A) a Giffen good. B) an inferior good. C) a public good. D) a normal good.

Q: We can derive the market demand curve for gold earrings A) only if the tastes of all gold earring consumers are similar. B) by adding horizontally the individual demand curves of each gold earring consumer. C) by adding vertically the quantity demanded of each gold earring consumed at each price. D) by adding the prices each gold earring consumer is willing to pay for each quantity.

Q: Giffen goods A) are theoretical and have never been discovered in the real world. B) have not existed since prior to the Industrial Revolution. C) were proven to exist in the 1890s by Sir Robert Giffen. D) were not shown to actually exist until 2006.

Q: The demand curve for a Giffen good is A) non-linear but downward-sloping. B) vertical. C) upward-sloping. D) non-existent.

Q: Economists Robert Jensen and Nolan Miller reasoned that to be a Giffen good, with an income effect larger than its substitution effect, a good must be ________ and make up a ________ portion of a consumer's budget. A) a normal good; very small B) an inferior good; very small C) a normal good; very large D) an inferior good; very large

Q: Along a downward-sloping linear demand curve A) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities increase. B) the marginal utility from the consumption of each unit of the good and the total utility from consuming larger quantities remain constant. C) the marginal utility from the consumption of each unit of the good falls and the total utility from consuming larger quantities increases. D) the marginal utility from the consumption of each unit of the good rises and the total utility from consuming larger quantities remain constant.

Q: In order to derive an individual's demand curve for salmon, we would observe what happens to the utility-maximizing bundle when we change A) income and hold everything else constant. B) tastes and preferences and hold everything else constant. C) the price of the product and hold everything else constant. D) the price of a close substitute and hold everything else constant.

Q: Figure 10-1 Refer to Figure 10-1. Which of the following statements is true? A) Quantities Q0 and Q1 are the utility-maximizing quantities of hoagies at two different prices of hoagies. B) Quantities Q0 and Q1 may not necessarily be the utility-maximizing quantities of hoagies at two different prices because we have no information on the consumer's budget or the price of other goods. C) Quantity Q0 could be a utility-maximizing choice if the price is $5.75, but quantity Q1 may not be because we have no information on the marginal utility per dollar when price changes. D) Quantities Q0 andQ1 are derived independently of the utility-maximizing model.

Q: Figure 10-1 Refer to Figure 10-1. When the price of hoagies increases from $5.00 to $5.75, quantity demanded decreases from Q1 to Q0. This change in quantity demanded is due to A) the price and output effects. B) the income and substitution effects. C) the fact that marginal willingness to pay falls. D) the law of diminishing marginal utility.

Q: Lilly Davis has $5 per week to spend on any combination of ice cream and candy. The price of an ice cream cone is $2 and the price of a candy bar is $1. The table below shows Lilly's utility values. Use the table to answer the questions that follow the table.Quantity of Ice Cream ConesTotal UtilityMarginal UtilityMarginal Utility per DollarQuantity of CandyTotal UtilityMarginal Utility120120238238352348462454a. Complete the table by filling in the blank spaces.b. Suppose Lilly purchases 2 ice cream cones and 1 candy bar. Is she consuming the optimal consumption bundle? If so, explain why. If not, what combination should she buy and why?

Q: The Wong family consumes 3 pounds of fish and 5 pounds of chicken per month. The price of fish is $8 per pound and chicken is $4 per pound. a. What is the amount of income allocated to fish and chicken consumption? b. What is the price ratio (the price of fish relative to the price of chicken)? c. Explain the meaning of the price ratio you computed. d. If the Wongs maximize utility, what is the ratio of the marginal utility of fish to the marginal utility of chicken? e. If the price of chicken rises, will the Wong family consume more chicken, less chicken or the same amount of chicken? Explain your answer using the rule of equal marginal utility per dollar.

Q: Arnie Ziffel has $20 per week to spend on any combination of pineapples and green tea. The price of a pineapple is $4 and the price of a bottle of green tea is $2. The table below shows Arnie's utility values. Use the table to answer the questions that follow the table.Quantity of PineapplesTotal UtilityMarginal UtilityMarginal Utility per DollarQuantity of Green TeaTotal UtilityMarginal UtilityMarginal Utility per Dollar132128252246364354468460570564671666771767a. Complete the table by filling in the blank spaces.b. Suppose Arnold purchases 4 pineapples and 2 bottles of green tea. Is he consuming the optimal consumption bundle? If so, explain why. If not, what combination should he buy and why?

Q: Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of cappuccino is $4 each and apple turnovers are $1 each. a. What is the amount of income allocated to cappuccino and apple turnover consumption? b. What is the price ratio (the price of cappuccino relative to the price of apple turnovers)? c. Explain the meaning of the price ratio you computed. d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers? e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.

Q: After getting an A on your economics exam, you decide to go to your favorite Mexican restaurant to celebrate. You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) the chimichanga for $8 which gives you 120 units of utility, or (b) the enchiladas for $15 which gives you 195 units of utility?

Q: You wish to buy only one CD. Use the rule of equal marginal utility per dollar to determine which one to purchase: (a) Usher's latest CD for $15 which gives you 75 units of utility, or (b) Tom Petty and the Heartbreakers' Greatest Hits for $10 that gives you 100 units of utility?

Q: The increase in consumption of a good when its price falls is caused by two effects. What are these two effects? Explain the difference between these effects.

Q: You participate in a taste test for a new protein supplement called "Boost." You are given five consecutive one ounce vials of the supplement and after consuming each vial you are asked to note your reaction. You consume the first vial and your response is: "Hmmm, quite good!" After the second, you say, "Not bad at all." After the third, you note, "It's alright." and after the fourth you wince, "No more, the after-taste is getting to me. I need water." What economic principle does this scenario illustrate? Define the principle.

Q: What is marginal utility and what is the law of diminishing marginal utility?

Q: Economists do not think it is possible to compare the relative utility that two people get from consuming an additional unit of a particular good.

Q: Economists assume people's tastes are identical.

Q: Table 9-3CandlesSoapBryce150450Tina200450Bryce and Tina are artisans who produce homemade candles and soap. Table 9-3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.Refer to Table 9-3. Select the statement that accurately interprets the data in the table.A) Bryce has a greater opportunity cost than Tina for making candles.B) Bryce's opportunity cost for making candles is less than Tina's.C) Tina has a greater opportunity cost than Bryce for making candles.D) Bryce's opportunity cost for making candles and making soap are both greater than Tina's.

Q: Table 9-3CandlesSoapBryce150450Tina200450Bryce and Tina are artisans who produce homemade candles and soap. Table 9-3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.Refer to Table 9-3. Select the statement that accurately interprets the data in the table.A) Bryce has an absolute advantage in making candles and soap.B) Tina has an absolute advantage in making candles and soap.C) Neither Bryce nor Tina has an absolute advantage in making candles.D) Neither Bryce nor Tina has an absolute advantage in making soap.

Q: Table 9-3CandlesSoapBryce150450Tina200450Bryce and Tina are artisans who produce homemade candles and soap. Table 9-3 lists the number of candles and bars of soap Bryce and Tina can each produce in one month.Refer to Table 9-3. Select the statement that accurately interprets the data in the table.A) Bryce has an absolute advantage in making candles and Tina has an absolute advantage in making soap.B) Bryce has an absolute advantage in making soap and Tina has an absolute advantage in making candles.C) Bryce has an absolute advantage in making soap.D) Tina has an absolute advantage in making candles.

Q: Table 9-2 Pies Cakes Sarita 15 25 Gabriel 12 16 Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Refer to Table 9-2. Select the statement that accurately interprets the data in the table. A) Sarita has a comparative advantage in baking pies. B) Gabriel has an absolute advantage in baking cakes. C) Gabriel has a comparative advantage in baking pies. D) Gabriel has a comparative advantage in baking pies and baking cakes.

Q: Table 9-2 Pies Cakes Sarita 15 25 Gabriel 12 16 Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Refer to Table 9-2. Select the statement that accurately interprets the data in the table. A) Sarita has a comparative advantage in baking pies. B) Gabriel has a comparative advantage in baking cakes. C) Sarita has a comparative advantage in baking pies and baking cakes. D) Sarita has a comparative advantage in baking cakes.

Q: Table 9-2 Pies Cakes Sarita 15 25 Gabriel 12 16 Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Refer to Table 9-2. Select the statement that accurately interprets the data in the table. A) Sarita has a greater opportunity cost than Gabriel for baking cakes. B) Sarita's opportunity cost for baking cakes is less than Gabriel's. C) Gabriel has a greater opportunity cost than Sarita for baking pies. D) Gabriel's opportunity cost for baking cakes and baking pies are both greater than Sarita's.

Q: Table 9-2 Pies Cakes Sarita 15 25 Gabriel 12 16 Sarita and Gabriel own S&G Bakery. Table 9-2 lists the number of pies and cakes Sarita and Gabriel can each bake in one day. Refer to Table 9-2. Select the statement that accurately interprets the data in the table. A) Sarita has an absolute advantage in baking cakes and Gabriel has an absolute advantage in baking pies. B) Sarita has an absolute advantage in baking pies and Gabriel has an absolute advantage in baking cakes. C) Sarita has an absolute advantage in baking pies and cakes. D) Gabriel has an absolute advantage in baking pies and cakes.

Q: Table 9-1BathingGroomingLinda6020Sandy5025Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.Refer to Table 9-1. Select the statement that accurately interprets the data in the table.A) Linda has a comparative advantage in dog bathing.B) Sandy has an absolute advantage in dog bathing.C) Sandy has a comparative advantage in dog bathing.D) Linda has a comparative advantage in dog grooming and dog bathing.

Q: Table 9-1BathingGroomingLinda6020Sandy5025Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.Refer to Table 9-1. Select the statement that accurately interprets the data in the table.A) Sandy has a comparative advantage in dog grooming.B) Linda has a comparative advantage in dog grooming.C) Linda has a comparative advantage in dog grooming and dog bathing.D) Sandy has a comparative advantage in dog bathing.

Q: Table 9-1BathingGroomingLinda6020Sandy5025Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.Refer to Table 9-1. Select the statement that accurately interprets the data in the table.A) Sandy has a greater opportunity cost than Linda for dog grooming.B) Sandy's opportunity cost for dog grooming is less than Linda's.C) Linda has a greater opportunity cost than Sandy for dog bathing.D) Sandy's opportunity cost for dog grooming and dog bathing are both greater than Linda's.

Q: Table 9-1BathingGroomingLinda6020Sandy5025Linda and Sandy own The Preppy Puppy, a dog grooming business. Table 9-1 lists the number of dogs Linda and Sandy can each bathe and groom in one week.Refer to Table 9-1. Select the statement that accurately interprets the data in the table.A) Linda has an absolute advantage in dog bathing and Sandy has an absolute advantage in dog grooming.B) Sandy has an absolute advantage in dog bathing and Linda has an absolute advantage in dog grooming.C) Sandy has an absolute advantage in dog bathing and dog grooming.D) Linda has an absolute advantage in dog bathing and dog grooming.

Q: ________ is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. A) Absolute advantage B) Specialization C) Autarky D) Comparative advantage

Q: Absolute advantage is A) the ability to produce more of a good or service than competitors when using the same amount of resources. B) the ability to produce higher quality goods compared to one's competitors. C) the ability to produce a good or service at a higher opportunity cost than one's competitors. D) the ability to produce more of a good or service than competitors that have more resources.

Q: How have U.S. imports and exports, as a fraction of GDP, changed from 1970 to the present?

Q: What is the difference between imports and exports?

Q: What is a tariff?

Q: Goodyear's sales are now greater outside the United States than inside the United States.

Q: A tariff is a tax imposed by a government on its own exports.

Q: Each year, the U.S. exports about 50 percent of its wheat crop.

Q: In the United States, imports and exports make up more than half of GDP.

Q: Which of the following statements is true? A) Exports benefit trading countries because exports create jobs. Imports do not benefit trading countries because they result in a loss of jobs. B) Each year China exports about 50 percent of its wheat crop and 40 percent of its rice crop. C) Most of the leading exporting countries are large, high-income countries. D) All sectors of the U.S. economy are affected equally by international trade.

Q: Today, the United States charged an average tariff rate A) that is more than its average tariff rate in 1930. B) which is greater than any other high-income country. C) of less than 2 percent. D) that exceeds 50 percent.