In behavioral economics, the endowment effect refers to A) most people believe that most wealthy people inherit their wealth. B) many people would be indifferent between being endowed with money or knowledge. C) many people place a higher value on what they own than when they consider purchasing. D) most people respond to tax incentives […]
In behavioral economics, the term salience refers to A) relevance to the problem being investigated. B) people only consider information when it is conveyed in a subtle manner. C) how an experiment is designed. D) people consider information when it is presented in an “eye grabbing” manner. ANSWER D
Keith is indifferent between canned soup and fresh soup. In the figure above, Keith’s indifference curves are represented by I1, I2, I3, and I4 curves. Canned soup sells for $1 per serving and fresh soup sells for $2 per serving. What is Keith’s income? A) $8 B) $4 C) $2 D) $5 ANSWER B […]
What is one reason a gift card might be less desirable than cash? A) A gift card requires an individual to purchase from a particular store, which restricts the choice set. B) Cash requires an individual to purchase from a particular country, which restricts the choice set. C) Cash and the gift card are equally […]
If the food stamp program in the United States moved from coupons redeemable for food to cash payments, A) everyone would buy less food and more of other goods. B) everyone would buy more food and less of other goods. C) some people might buy less food and obtain a higher level of utility. D) […]
An optimal choice in which a consumer does not consume all types of goods A) is a corner solution. B) cannot be an equilibrium. C) cannot exhaust the budget constraint. D) is an interior solution. ANSWER A
If income increases due to a decrease in taxes, then A) utility will increase because consumers can afford a larger bundle of goods. B) utility will fall because consumers will be forced to buy a smaller bundle of goods. C) utility will remain constant. D) utility will increase because consumers will be forced to buy […]
Data shows that United States college students purchase more e-books than German college students. Assuming that all students have identical preferences for e-books and textbooks, what is the likely explanation for this result? A) Taxes on textbooks are higher in the United States than taxes on textbooks in Germany. B) Taxes on textbooks are lower […]
One reason more sport utility vehicles (SUVs) are driven in the United States than in Europe is A) different marginal rates of substitution. B) different marginal rates of transformation. C) the United States hasn’t had a recession since 2000-2001. D) Either A or B ANSWER D
Cash may be preferred to food stamps because additional cash A) rotates the budget constraint. B) shifts out the budget constraint at every point. C) provides a smaller opportunity set. D) allows the purchase of more food. ANSWER B
