Microeconomics – Chapter 6 Consumer Choice and Demand

Because they are so sure of their ability to pick winners, some people hang on to a stock even in the face of overwhelming evidence that its price is going to drop. These people are subject to:

overvaluing the present relative to the future.
a framing bias.
a sunk cost fallacy.
overconfidence.

A consumer is in equilibrium when:

marginal utilities are equal.
the same total utility is derived from each commodity.
the addition to total utility per dollar is the same for every commodity.
an equal amount is spent on every commodity.

Parami volunteers at a homeless shelter. It takes a lot of her time, and thus she sometimes takes off time from her job to do the volunteer work. Parami's behavior can be explained by:

a framing bias.
altruism.
overvaluing the present relative to the future.
overconfidence.

Marginal utility analysis and indifference curve analysis are both used to:

compute comparative advantage.
derive supply curves.
analyze total revenue.
derive demand curves.

At an all-you-can eat buffet, a person will stop eating when:

total utility increases at a diminishing rate.
total utility is equal to zero.
marginal utility increases at a diminishing rate.
marginal utility is equal to zero.

Bayram had the opportunity to choose between two investments. The first investment was described as having a 30% chance of succeeding, while the second investment was described as having a 70% chance of failing. Bayram opted for the first investment, because he thought it sounded less risky than the second investment. The chances of succeeding and failing are the same for the two investments, however, which implies that Bayram is subject to:

overconfidence.
overvaluing the present relative to the future.
a framing bias.
a sunk cost fallacy.

Ryan stayed out late last night and is very tired. He plans to skip his 8 A.M. economics class, even though he knows his professor will cover material that will be on the final exam. Ryan is subject to:

a framing bias.
a sunk cost bias.
overvaluing the present relative to the future.
overconfidence.

Total utility:

is the total satisfaction derived from the consumption of given quantity of a good.
is the change in total satisfaction derived from consuming one more unit of a good.
decreases with the consumption of each additional good.
is the change in marginal satisfaction derived from consuming one more unit of a good.

If the prices of the two goods the consumer buys increase:

the budget line shifts to the right.
the budget line shifts closer to the origin.
the indifference curve shifts to the right.
the budget line rotates to the right.

(Table) Referring to the table, which shows the total utility and marginal utility for ice cream consumption, the value for C will be:


21

23

22

24

A utility-maximizing consumer will always choose to:

maximize marginal utility.
maximize total utility.
minimize expenditures.
consume all of the good that provides the highest utility per unit.

The local school district wants to close down a neighborhood high school because its outdated heating and cooling systems make it too expensive to operate compared to the new high school being built nearby. Parents who are against closing the neighborhood school argue that the $2 million dollars spent refurbishing the school over the last few years will be wasted if the school is shut down. This argument is an example of:

overconfidence.
a framing bias.
a sunk cost fallacy.
altruism.

After Rachene bought a magazine subscription, she does not enjoy the articles in the magazine. However, she dutifully reads the entire magazine every month because she had already paid for the subscription, and she feels the money will be wasted if she does not read it. What psychological factor associated with behavioral economics explains Rachene's behavior?

overvaluing the present relative to the future
a framing bias
overconfidence
the sunk cost fallacy

If the United States experiences an inflationary episode in which prices of goods and services go up faster than incomes, budget lines for U.S. consumers will:

shift inward.
pivot inward.
pivot outward.
shift outward.

Jeremy's level of satisfaction from consuming the first cookie was 25 utils. The second cookie increased the level of satisfaction by 20 utils. Jeremy's total level of satisfaction after three cookies was 60. Thus, the marginal utility for the third cookie is:

60.
45.
25.
15.

Indifference curves:

show the difference between the marginal utilities of two different goods.
represent a set of product bundles to which a consumer is indifferent.
slope up and to the right.
are concave to the origin.

Total utility:

is the total satisfaction derived from the consumption of given quantity of a good.
is the change in total satisfaction derived from consuming one more unit of a good.
decreases with the consumption of each additional good.
is the change in marginal satisfaction derived from consuming one more unit of a good.

Indifference curves cannot be concave to the origin because:

the substitution effect holds across indifference curves.
consumers must give up more of one good to obtain more of another good.
consumers generally will prefer to have more of a good than less of a good.
the satisfaction consumers get from consuming additional units of a good declines.