TIS WoPRbook Sample B (Multiple Choice Continued) Rational ignorance occurs when
ID: 1129837 • Letter: T
Question
TIS WoPRbook Sample B (Multiple Choice Continued) Rational ignorance occurs when... Voters know there is a low informed a. value to being informed on policies and a high cost to being informed on b. Firm c. A d. A firm spends zero dollars on advertising revenues. s use imperfect information to get consumers to pay higher prices. Seiler has more information about the quality of a product than a buyer. Situation Quantity of Good X Price X $8 $5 $5 10 17 12 The table above shows the quantities of Good X that a consumer purchases in three different situations (A, B, and C). The consumer has the same income in situation A and B and lower income in situation C. The consumer has the same level of utility in situation A and C. Determine the substitution effects for this price change. 7) a. Substitution Effect is +7; Income Effect is +0 b. Substitution Effect is +0; Income Effect is +7 c. Substitution Effect is +2; Income Effect is +5 d. Substitution Effect is +5; Income Effect is +2 e. None of the above.Explanation / Answer
6.) The correct answer is option (A)
Rational ignorance occurs when the cost of educating oneself to make a well informed decision can outweigh any potential benifit one could reasonably expect to gain from that decision, so it would be irrational to waste time doing so.
7.) The correct answer is option (C)
The substitution effect here is +2 and the income effect is +5 as we see from the table.
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