Post Exam 1 - Exam 2

Question 1

What is the economic definition of​ utility?
Utility is

Answer 1

the enjoyment or satisfaction people receive from consuming goods and services.

Question 2

Is utility measurable?

Answer 2

No

Question 3

What is the definition of marginal​ utility?

Answer 3

The change in utility from consuming an additional unit of a good or service.

Question 4

The law of diminishing marginal utility suggests that

Answer 4

consumers experience diminishing additional satisfaction as they consume more of a good or service.

Question 5

Marginal utility is more useful than total utility in consumer decision making because

Answer 5

optimal decisions are made at the margin.

Question 6

According to the law of diminishing marginal​ utility, as the consumption of a particular good​ increases,

Answer 6

marginal utility decreases.

Question 7

A market demand curve is derived by

Answer 7

adding horizontally the individual demand curves.

Question 8

The demand for lemonade for Luci ​(​DL) and Kyle ​(​DK) is illustrated in the figure. Derive the market demand curve for lemonade if the market is comprised of only these two consumers.

Answer 8

Insert picture from homework 10, question 5

Question 9

Which of the following products is most likely to have significant network externalities​?

Answer 9

Smartphones

Question 10

In an opinion column in the New York Times​, economists Luigi Zingales and Guy Rolnik of the University of Chicago​ write, “Google has about a 90 percent market share in​ searches, while Facebook has a penetration of about 89 percent of Internet users. Economists have a fancy name for this​ phenomenon: ‘network​ externalities.’”
​
Briefly explain how Google and Facebook may have benefitted from network externalities.

Answer 10

The usefulness of their products has increased with the number of consumers who use them.

Question 11

What explanations have economists offered for why firms​ don’t raise prices when doing so would seem to increase​ profits?

Firms might not raise prices when doing so might increase profits because

Answer 11

consumers find it unfair for firms to increase prices after an increase in demand.

Question 12

What affects the desirability of a​ product?

Products become more desirable when

Answer 12

A. use a product because consumers who use the same product may feel closer to famous people.
B. use a product because consumers who use the same product may feel more fashionable.
C. use a product because consumers perceive them to be particularly knowledgeable about it.
D. both a and b.
E. all of the above. (CORRECT)

Question 13

Consumer choices are affected by social influences such as

Answer 13

A. whether consumption of a product will make the consumer appear fashionable.
B. celebrity endorsements.
C. what other consumers are buying.
D. fairness.
E. all of the above (CORRECT)

Question 14

What happens when network externalities are​ present?

Answer 14

The usefulness of a product increases with the number of consumers who use it.

Question 15

What happens when consumption of a product is path​ dependent?

Answer 15

The cost of switching to a product with a better technology gives the product with the initial technology an advantage.

Question 16

Behavioral economics is the study of

Answer 16

situations in which people make choices that do not appear to be economically rational.

Question 17

Three mistakes consumers often make are

Answer 17

ignoring nonmonetary opportunity​ costs, failing to ignore sunk​ costs, and being overly optimistic about the future.

Question 18

Suppose that you are a big fan of the Harry Potter books. You would love to own a copy of the very first printing of the first​ book, but unfortunately you​ can’t find it for sale for less than​ $5,000. You are willing to pay at most​ $200 for a​ copy, but​ can’t find one at that price until one day in a used bookstore you see a copy selling for​ $10, which you immediately buy.
If you keep the copy rather than sell​ it, then all of the following are correct except

Answer 18

you are making a rational choice since the opportunity cost of the book is​ $5,000.

Question 19

In an article in the Quarterly Journal of Economics​, Ted​ O’Donoghue and Matthew Rabin make the following​ observation:
​”People have​ self-control problems caused by a tendency to pursue immediate gratification in a way that their​ ‘long-run selves’ do not​ appreciate.”

Which of the following is an example of pursuing a goal which is in a​ person’s long-term​ interest?

Answer 19

Succeeding in school

Question 20

According to behavioral​ economics, consumers

Answer 20

do not always behave rationally because they fail to ignore sunk cost.

Question 21

According to a news​ story, the Web site Stickk offers a service where you give them money that they will donate to charity if you fail to go to the gym as often as you promise to.​ (You can even have the money donated to an ​anti-charity - a cause you disapprove​ of.)

Why would anyone use this service?

People who fail to go to a gym to work out as often as they promise

Answer 21

are overly optimistic about their future behavior in attending the gym regularly and Stickk provides a financial incentive for them to reach these goals.

Question 22

Behavioral economists attribute some consumer behavior to the endowment effect.

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

An example of the endowment effect is

Answer 22

being unwilling to sell a for a price that is greater than the price you would be willing to pay to buy the if you​ didn’t already own it.

Question 23

How should sunk costsLOADING… be used in consumer​ decision-making?

In consumer​ decision-making, sunk costs should

Answer 23

be ignored

Question 24

Suppose you bought a ticket to a basketball game. The ticket is nonrefundable​ (and can’t be​ resold) and must be used on Saturday.​ Then, a friend calls and invites you to a play on Saturday. You only have time to attend one of the​ events, and your friend offers to pay the cost of going to the play.

If you prefer plays over basketball games​, then you should attend the ____

Answer 24

play

Question 25

Marginal benefit is

Answer 25

the additional benefit from consuming one more unit.

Question 26

Why is the demand curve referred to as a marginal benefit​ curve?

Answer 26

It shows the willingness of consumers to purchase a product at different prices.

Question 27

Marginal cost is

Answer 27

the additional cost of producing one more unit.

Question 28

Why is the supply curve referred to as a marginal cost​ curve?

Answer 28

It shows the willingness of firms to supply a product at different prices.

Question 29

Consumer surplus is

Answer 29

the difference between the highest price a consumer is willing to pay and the price the consumer actually pays.

Question 30

How does consumer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, consumer surplus _______​, and as the price of a good​ falls, consumer surplus ________.

Answer 30

decreases, increases

Question 31

Producer surplus is

Answer 31

the difference between the lowest price a firm would be willing to accept and the price it actually receives.

Question 32

How does producer surplus change as the equilibrium price of a good rises or​ falls? As the price of a good​ rises, producer surplus ________​, and as the price of a good​ falls, producer surplus ________.

Answer 32

increases, decreases

Question 33

A price ceiling is a legally determined _______ price that sellers may charge. A price floor is a legally determined _______ price that sellers may receive.

Answer 33

maximum, minimum

Question 34

Economic surplus at Q3 would be smaller than at Q2 because if Q3 units were​ produced, then some units for which marginal cost is ________ marginal benefit would __ produced.

Answer 34

greater than, be

Question 35

Economic efficiency is

Answer 35

a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum.

Question 36

Why do some consumers tend to favor price controls while others tend to oppose​ them?

Answer 36

Price ceilings generate shortages.​ Consequently, the consumers who obtain the product at a lower price​ win, but other consumers will lose because they would like to purchase the product but are unable to because of a shortage.

Question 37

Do producers tend to favor price floors or price​ ceilings? ​ Why? Producers favor

Answer 37

price floors​ because, when​ binding, price floors increase price above the equilibrium and may increase producer surplus.

Question 38

A black market is

Answer 38

a market in which buying and selling take place at prices that violate government price regulations.

Question 39

Discussions of the economic results of rent control and of federal farm programs would be considered​ ________ analysis, and discussions of whether rent control and the farm programs are good or bad policies would be considered​ ________ analysis.

Answer 39

positive, normative

Question 40

Tax incidence indicates

Answer 40

the actual division of the burden of a tax.

Question 41

Do the people who are legally required to pay a tax always bear the burden of the​ tax? Briefly explain.

Answer 41

No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.

Question 42

Add all graphs from chapter 4 homework

Question 43

Which of the following is not a fundamental concept that underlies consumer behavior?

Answer 43

Consumers always make choices with perfect information.

Question 44

Which of the following is true about marginal benefit?

Answer 44

a. A consumer's marginal benefit is equal to the height of the demand curve. b. Consumers will continue to purchase a good up until the point where marginal benefit equals price. c. Marginal benefit declines as consumption increases because of the law of diminishing marginal utility. d. All of the above. (CORRECT)

Question 45

Which of the following is the definition of producer surplus?

Answer 45

The difference between the lowest price a firm would have been willing to accept and the price it actually receives.

Question 46

Economic efficiency

Answer 46

is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production.

Question 47

What is the name of a legally determined minimum price that sellers may receive?

Answer 47

Price floor

Question 48

Suppose the quantity supplied for tea is five cups per week at a price of $2.00 per cup. What does this mean? a. It means that marginal benefit equals marginal cost when five cups are consumed. b. It means that the total cost of consuming five cups of tea is $2.00. c. It means that the marginal cost of producing five cups is $2.00. d. It means that the marginal benefit of consuming the fifth cup is $2.00.

Answer 48

It means that the marginal cost of producing five cups is $2.00.

Question 49

What is an​ externality?

Answer 49

A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service

Question 50

Which of the following is an example of a good or service having the effects of a positive​ externality?

Answer 50

Medical research and education

Question 51

Which of the following is an example of a good or service having the effects of a negative​ externality?

Answer 51

Cigarette smoking

Question 52

The private cost of producing a good will differ from the social cost

Answer 52

when there is an​ externality, such as acid rain generated by the production of electricity.

Question 53

When will the private benefit from consuming a good differ from the social​ benefit?

Answer 53

When there is an​ externality, such as​ second-hand smoke generated by the consumption of cigarettes, and when there is an​ externality, such as fewer diseases generated by the consumption of vaccines.

Question 54

What is economic​ efficiency?

Answer 54

Economic efficiency is where consumer surplus and producer surplus are maximized.

Question 55

Externalities affect the economic efficiency of a market equilibrium by causing a difference between A. the private cost of production and the social cost of production. B. the private benefit of consumption and the social benefit of production. C. consumer surplus and producer surplus. D. both a and b. E. all of the above.

Answer 55

Both A and B

Question 56

Every year at the beginning of flu​ season, many​ people, including the​ elderly, get a flu shot to reduce their chances of contracting the flu. One result is that people who do not get a flu shot are less likely to contract the flu.        Getting a flu shot results in a ________ externality.

Answer 56

Positive

Question 57

How do externalities in the production of electricity result in market failure​? Because of​ externalities, the market for electricity will

Answer 57

provide too much energy

Question 58

What are the sources of externalities and market​ failure?

Answer 58

The difficulty of enforcing property rights in certain countries, and incomplete property rights