question

The utility of a good or service:

answer

is the satisfaction or pleasure one gets from consuming it.

question

Marginal utility can be:

answer

positive, negative, or zero

question

Mary says, "You would have to pay me $50 to attend that pro wrestling event." For Mary, the marginal utility of the event is:

answer

negative.

question

The ability of a good or service to satisfy wants is called:

answer

utility

question

A product has utility if it:

answer

satisfies consumer wants.

question

The law of diminishing marginal utility states that:

answer

beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.

question

The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:

answer

8 units of utility.

question

If the price of product X rises, then the resulting decline in the amount purchased will:

answer

increase the marginal utility of the last unit consumed of this good.

question

Marginal utility is the

answer

change in total utility obtained by consuming one more unit of a good

question

Utility refers to the

answer

satisfaction that a consumer derives from a good or service.

question

Total utility may be determined by

answer

summing the marginal utilities of each unit consumed.

question

Where total utility is at a maximum, marginal utility is

answer

zero

question

Which of the following is correct?

answer

If marginal utility is diminishing and is a positive amount, total utility will increase.

question

The law of diminishing marginal utility explains why

answer

demand curves slope downward.

question

While eating at Alex's "Pizza by the Slice" restaurant, Kara experiences diminishing marginal utility. She gained 10 units of satisfaction from her first slice of pizza consumed and would only receive 5 units of satisfaction from consuming a second slice, at the same price. Based on this information we can conclude that:

answer

Alex may have to lower the price to convince Kara to buy a second slice.

question

The theory of consumer behavior assumes that:

answer

consumers behave rationally, attempting to maximize their satisfaction.

question

To maximize utility, a consumer should allocate money income so that the:

answer

marginal utility obtained from the last dollar spent on each product is the same.

question

Suppose that MUx/Px exceeds MUy/Py. To maximize utility, the consumer who is spending all her money income should buy:

answer

more of X and less of Y.

question

Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

answer

Mrs. Arnold should spend more on soda and less on pretzels.

question

Ben is exhausting his money income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase:

answer

more of B and less of A.

question

The marginal utility of the last unit of apples consumed is 12 and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

answer

$6 and $4

question

Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:

answer

their marginal utilities are the same.

question

A consumer is maximizing her utility with a particular money income when

answer

MUa/Pa = MUb/Pb = MUc/Pc = . . . = MUn/Pn.

question

Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4 respectively. The marginal utility of the last units of A and B are 16 and 24 respectively. These data suggest that Ms. Thomson:

answer

should buy less B and more A.

question

If a rational consumer is in equilibrium, which of the following conditions will hold true?

answer

The marginal utility of the last dollar spent on each good purchased will be the same.

question

Which of the following best explains the difference between neoclassical economics and behavioral economics?

answer

Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.

question

Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?

answer

People have preferences that are unstable and vary by context.

question

Behavioral economists believe that people:

answer

often succumb to temptation.

question

Neoclassical economists generally believe which of the following about human behavior?

answer

When individuals make mistakes in decision making, they adjust to these errors and rarely repeat them.

question

Which of the following sets of personal characteristics best reflects what behavioral economists assume about how people make decisions?

answer

People have preferences that depend on context, avoid and are bad at computation, often give in to temptation, and are often selfless in their behavior.

question

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a neoclassic economist would expect Susie to:

answer

carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.

question

In the financial crisis that precipitated the 2007-2009 recession, people systematically overestimated their prospects for financial gain. Which branch of economics would most likely have expected to predict this?

answer

Behavioral economics.

question

Which of the following individuals received a Nobel Prize in economics for his work in behavioral economics?

answer

Daniel Kahneman.

question

Susie knows that too many sugary treats, while delicious when eaten, have long-term adverse effects on weight and health. Based on this information, a behavioral economist would expect Susie to:

answer

eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future.

question

What do neoclassical economics and behavioral economics believe about giving people options?

answer

Neoclassical economics focuses on providing more options; behavioral economics focuses on helping people make better decisions with the options available.

question

Which of the following statements best reflects how a behavioral economist views individual decision making?

answer

Balin tries to make good, well-thought-out decisions, but his desire for utility in the present means that he often gives in to costly temptations.

question

Because neoclassical economists assume that people are rational decision makers, they:

answer

ignore the mental processes by which these decisions are made.

question

Which of the following supermarket strategies to increase sales would be most consistent with a neoclassical economics (versus behavioral economics) approach?

answer

Providing discounts for buying in bulk.

question

Neoclassical economics and behavioral economics:

answer

are generally viewed as complementary, together providing better understanding of economic behavior than each could on its own.

question

Which of the following supermarket strategies to increase sales would be most consistent with a behavioral economics (versus neoclassical economics) approach?

answer

Positioning frequently purchased items at the back of the store.

question

Why, according to behavioral economics, would supermarkets place gum, candy, and other small convenience items near the cash registers?

answer

Many of these are small items that people will buy on an impulse.

question

Many of these are small items that people will buy on an impulse.

answer

Maximize impulse buying by consumers.

question

Which of the following would represent a systematic error?

answer

Which of the following would represent a systematic error?

question

According to behavioral economists, the human brain:

answer

uses evolutionary-developed heuristics to make many decisions.

question

According to behavioral economists, the human brain frequently employs heuristics because:

answer

they save energy and time in decision making.

question

Behavioral economists believe that the human brain is generally:

answer

efficient but prone to errors.

question

Heuristics

answer

are shortcuts that save time and energy in decision making.

question

Those who believe that "there is no such thing as bad publicity" base this argument on which of the following ideas from behavioral economics?

answer

That the recognition heuristic will overcome any negative emotional associations.

question

Which of the following is not an implication of hardwired heuristics?

answer

Getting people to make better decisions is simply a matter of providing more information and more options.

question

Which of the following statements is most accurate about human brain modularity?

answer

System 1 uses heuristics, system 2 is more calculating, and most decisions are made by system 1.

question

Buck carefully plans out an early morning exercise routine to lose weight and get fit. When it's time to work out, however, Buck just "doesn't feel up to it" and decides to sleep in. Behavioral economics would say that Buck:

answer

used System 2 of his brain to formulate his workout plan, but then gave in to System 1 when he chose to sleep in.

question

Behavioral economics recognizes that people use System 1 to make decisions more often than they use System 2. Which of the following is an implication of that decision-making process?

answer

A majority of decisions are not made according to the neoclassical assumption of rational behavior.

question

Which of the following is the best example of a System 2 decision and action?

answer

Chuck, who has contemplated a job change for a month and has other offers, chooses to quit when his boss makes him mad.

question

According to behavioral economics, cognitive biases:

answer

are misunderstandings or misperceptions that cause systematic error.

question

Dorothy likes to invest in gold as part of her overall financial investment portfolio, as her gut tells her it will increase dramatically in value. Her favorite and generally only source of investment advice is Wizard's Gold Hour on the OZ cable channel. As a result of this advice, Dorothy's portfolio mix is suboptimal, as it is too heavily weighted in gold. Behavioral economists would say that Dorothy suffers from:

answer

confirmation bias.

question

Which of the following cognitive biases refers to people's tendency to attribute their successes to personal ability and effort, and failures to forces outside their control?

answer

Self-serving bias.

question

In anonymous surveys, on average people rate themselves as "above average" with regard to characteristics such as intelligence, perceptiveness, and driving ability. According to behavioral economics, this contradictory result would most likely be caused by the:

answer

overconfidence effect.

question

John's friend Rosika won a major lottery jackpot. Seeing this, and despite the fact that millions don't win and the odds of winning are infinitesimal, John goes out and buys a bunch of lottery tickets despite struggling financially. John's decision to buy the lottery tickets under these circumstances would best be explained by the:

answer

availability heuristic.

question

Dan was certain that his upcoming economics test would be so easy that he could wait to study until the night before and still do well on the exam. When he cracked open his book and notes the night before the exam, he realized he should've started studying earlier. According to behavioral economics, Dan's error was caused primarily by:

answer

a planning fallacy.

question

Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite dessert. Despite the fact he would enjoy the flavor of the tiramisu the same amount every time, Josh only buys it when others are having dessert, and never buys it if he would be the only one having dessert. Behavioral economists would say that Josh's decision is affected by:

answer

framing effects.

question

Fatal automobile accidents occur much more frequently than do fatal airplane crashes, yet airplane crashes receive a disproportionate amount of media coverage. As a result, some people are overly fearful of flying in planes yet have no problem riding in cars. Which of the following cognitive biases best explains this disconnect between these people's fears and the statistical realities?

answer

Availability heuristic.

question

Specialty shops can charge and get customers to pay higher prices for identical goods than they would pay in "big box" stores. Assuming that these differences are driven by store appearance rather than differences in services provided, which of the following best explains this phenomenon?

answer

Framing effects.

question

When people convince themselves that they "knew all along" what was going to happen, when in fact their predictions were incorrect, they suffer from:

answer

hindsight bias.

question

Economic cost can best be defined as:

answer

a payment that must be made to obtain and retain the services of a resource.

question

Which of the following is most likely to be an implicit cost for Company X?

answer

Forgone rent from the building owned and used by Company X.

question

Which of the following constitutes an implicit cost to the Johnston Manufacturing Company?

answer

Use of savings to pay operating expenses instead of generating interest income.

question

Production costs to an economist:

answer

reflect opportunity costs.

question

To the economist, total cost includes:

answer

explicit and implicit costs.

question

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common?

answer

All are opportunity costs.

question

Implicit and explicit costs are different in that:

answer

the former refer to nonexpenditure costs and the latter to monetary payments.

question

Accounting profits equal total revenue minus:

answer

total explicit costs.

question

An explicit cost is:

answer

a money payment made for resources not owned by the firm itself.

question

Accounting profits are typically:

answer

greater than economic profits because the former do not take implicit costs into account.

question

Economic profits are calculated by subtracting:

answer

explicit and implicit costs from total revenue.

question

Normal profit is:

answer

the return to the entrepreneur when economic profits are zero.

question

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

answer

$200,000 and its economic profits were zero.

question

Which of the following definitions is correct?

answer

Economic profit = accounting profit - implicit costs.

question

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

answer

profits were zero and its economic losses were $500,000.

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's explicit costs are:

answer

$150,000.

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's implicit costs, including a normal profit, are:

answer

$136,000

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's total economic costs are:

answer

$286,000

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's accounting profit is:

answer

$230,000

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's economic profit is:

answer

$94,000

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp's total revenues exceed its total costs, including a normal profit, by:

answer

$94,000

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. Creamy Crisp:

answer

is earning an economic profit.

question

The following is cost information for the Creamy Crisp Donut Company: Entrepreneur's potential earnings as a salaried worker = $50,000 Annual lease on building = $22,000 Annual revenue from operations = $380,000 Payments to workers = $120,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Refer to the data. If, other things equal, Creamy Crisp's revenue fell to $286,000:

answer

it would earn a normal profit but not an economic profit.

question

The basic characteristic of the short run is that:

answer

the firm does not have sufficient time to change the size of its plant.

question

Which of the following represents a long-run adjustment?

answer

Unable to meet foreign competition, a U.S. watch manufacturer sells one of its branch plants.

question

Which of the following is a short-run adjustment?

answer

A local bakery hires two additional bakers.

question

To economists, the main difference between the short run and the long run is that:

answer

in the long run all resources are variable, while in the short run at least one resource is fixed.

question

The amount of calendar time associated with the long run:

answer

varies from industry to industry.

question

The basic difference between the short run and the long run is that:

answer

at least one resource is fixed in the short run, while all resources are variable in the long run.

question

Marginal product is:

answer

the increase in total output attributable to the employment of one more worker.

question

The law of diminishing returns indicates that:

answer

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

question

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct?

answer

AP continues to rise so long as TP is rising.

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

question

Marginal product:

answer

may initially increase, then diminish, and ultimately become negative.

question

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product respectively. Therefore, we can conclude that:

answer

marginal product of the third worker is 9.

question

Economists would describe the U.S. automobile industry as:

answer

an oligopoly.

question

In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies?

answer

Oligopoly

question

Which of the following industries most closely approximates pure competition?

answer

Agriculture

question

Economists use the term imperfect competition to describe:

answer

those markets that are not purely competitive.

question

In which of the following industry structures is the entry of new firms the most difficult?

answer

Pure monopoly.

question

An industry comprised of 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of:

answer

monopolistic competition.

question

An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:

answer

oligopoly

question

An industry comprised of a very large number of sellers producing a standardized product is known as:

answer

pure competition.

question

An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called:

answer

oligopoly

question

Which of the following statements applies to a purely competitive producer?

answer

It will not advertise its product.

question

A purely competitive seller is:

answer

a "price taker."

question

Which of the following is not a basic characteristic of pure competition?

answer

Considerable nonprice competition.

question

The demand schedule or curve confronted by the individual, purely competitive firm is:

answer

perfectly elastic.

question

Which of the following is characteristic of a purely competitive seller's demand curve?

answer

Price and marginal revenue are equal at all levels of output.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm, total revenue graphs as a:

answer

straight, upsloping line.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm, marginal revenue graphs as a:

answer

straight line, parallel to the horizontal axis.

question

In answering the question, assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. Refer to the information. For a purely competitive firm

answer

the demand and marginal revenue curves will coincide.

question

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:

answer

will also be $5.

question

Price is constant to the individual firm selling in a purely competitive market because:

answer

each seller supplies a negligible fraction of total supply.

question

For a purely competitive seller, price equals:

answer

average revenue. marginal revenue. total revenue divided by output. all of these.

question

For a purely competitive firm, total revenue:

answer

is price times quantity sold. increases by a constant absolute amount as output expands. graphs as a straight upsloping line from the origin. has all of these characteristics.

question

The marginal revenue curve of a purely competitive firm:

answer

is horizontal at the market price.

question

The demand curve in a purely competitive industry is ______, while the demand curve to a single firm in that industry is ______.

answer

downsloping; perfectly elastic

question

A perfectly elastic demand curve implies that the firm:

answer

can sell as much output as it chooses at the existing price.

question

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that:

answer

product price is constant at all levels of output.

question

Which of the following statements is correct?

answer

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

question

Marginal revenue is the:

answer

change in total revenue associated with the sale of one more unit of output.

question

Firms seek to maximize:

answer

total profit.

question

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

answer

marginal revenue and marginal cost.

question

In the short run, a purely competitive firm that seeks to maximize profit will produce:

answer

where total revenue exceeds total cost by the maximum amount.

question

A competitive firm will maximize profits at that output at which:

answer

total revenue exceeds total cost by the greatest amount.

question

Pure monopoly refers to:

answer

a single firm producing a product for which there are no close substitutes.

question

Which of the following is correct?

answer

A purely competitive firm is a "price taker," while a monopolist is a "price maker."

question

A purely monopolistic firm:

answer

faces a downsloping demand curve.

question

Pure monopolists may obtain economic profits in the long run because:

answer

of barriers to entry.

question

Which of the following best approximates a pure monopoly?

answer

The only bank in a small town.

question

Which of the following is a characteristic of pure monopoly?

answer

Barriers to entry.

question

Which of the following is not a barrier to entry?

answer

X-inefficiency.

question

Barriers to entering an industry:

answer

are the basis for monopoly.

question

A natural monopoly occurs when

answer

long-run average costs decline continuously through the range of demand.

question

Large minimum efficient scale of plant combined with limited market demand may lead to:

answer

natural monopoly.

question

What do economies of scale, the ownership of essential raw materials, and patents have in common?

answer

They are all barriers to entry.

question

The nondiscriminating pure monopolist's demand curve:

answer

is the industry demand curve.

question

The nondiscriminating monopolist's demand curve:

answer

is less elastic than a purely competitive firm's demand curve.

question

If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:

answer

will be less than $35.

question

For an imperfectly competitive firm:

answer

the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

question

When a firm is on the inelastic segment of its demand curve, it can:

answer

increase profits by increasing price.

question

A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:

answer

$1,000

question

With respect to the pure monopolist's demand curve, it can be said that:

answer

price exceeds marginal revenue at all outputs greater than 1.

question

The demand curve faced by a pure monopolist:

answer

is less elastic than that faced by a single purely competitive firm.

question

The marginal revenue curve for a monopolist:

answer

becomes negative when output increases beyond some particular level.

question

Which of the following is characteristic of a pure monopolist's demand curve?

answer

It is the same as the market demand curve.

question

Because the monopolist's demand curve is downsloping:

answer

price must be lowered to sell more output.

question

The pure monopolist's demand curve is relatively elastic:

answer

in the price range where marginal revenue is positive.

question

A nondiscriminating profit-maximizing monopolist:

answer

will never produce in the output range where demand is inelastic.

question

For a pure monopolist the relationship between total revenue and marginal revenue is such that:

answer

marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing.

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