QUESTION 22 1. Which of the following information is not embodied in the budget

Question

QUESTION 22

1.      Which of the following information is not embodied in the budget line?

Relative prices

The consumer's money income

The consumer's relative preferences for the two goods

All of the above

3 points   

QUESTION 23

1.       Joe has a job that pays $15 an hour. He can work as many (or as few) hours per week as he wants. For some reason, his boss starts paying him $50 per hour. As a result, Joe works fewer hours per week. This is because for Joe, the income effect dominates the substitution effect.

True

False

3 points   

QUESTION 24

1.       The subsitution effect of a wage increase refers to the fact that a higher wage increases the opportunity cost of leisure, thus causing leisure to become less attractive.

True

False

3 points   

QUESTION 25

1.       As any economist would tell you, the marginal utility from consuming goods and services in the present decreases as more goods and services are consumed. When the marginal utility of consuming goods and services in the present falls below the anticipated marginal utility of consuming goods and services in the future, the household will begin to:

A.

Spend

B.

Save

C.

Retire

D.

None of the above, this is gibberish.

3 points   

QUESTION 26

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

A.

People eagerly and accurately calculate the benefits and costs of their decisions.

B.

People have preferences that are unstable and vary by context.

C.

People are almost entirely self-interested in their behavior.

D.

People plan out decisions well and possess lots of willpower.

3 points   

QUESTION 27

1.       Behavioral economists believe that the human brain is generally:

A.

inefficient but accurate.

B.

efficient but prone to errors.

C.

efficient and accurate.

D.

inefficient and prone to errors.

3 points   

QUESTION 28

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

A.

hindsight bias.

B.

overconfidence bias.

C.

framing bias.

D.

self-serving bias.

3 points   

QUESTION 29

1.       According to the "endowment effect:"

A.

the intensity of feelings from gains and losses depends on how much wealth one possesses.

B.

people assign higher values to things they own than things they don't.

C.

people feel gains and losses with equal intensity.

D.

people are willing to pay more for things they don't own than they would have to receive to give up something they already have.

3 points   

QUESTION 30

1.       "Time inconsistency" refers to the:

A.

tendency for policies with high short-run benefits to have high long-run costs.

B.

tendency to misjudge how long it will take to accomplish a future task.

C.

fallacy that what is true for the short run must be true for the long run.

D.

tendency to regularly misjudge in the present what you will do in the future.

3 points   

QUESTION 31

1.       Results of the ultimatum game:

A.

demonstrate that markets are generally inefficient.

B.

contradict the metaphor of the invisible hand.

C.

affirm the metaphor of the invisible hand.

D.

suggest that governments are unnecessary.

3 points   

QUESTION 32

1.       Refer to Consider This (p. 181): The hedonic treadmill refers to a phenomenon where:

A.

people can't improve their economic well-being because prices increase as fast as wages.

B.

feelings of loss offset our feelings of gain, leaving us no happier in the long term.

C.

increasing our level of consumption doesn't make us any happier in the long term.

D.

people can't get out of debt because credit card companies use anchoring to get consumers to carry large balances on their accounts.

3 points   

QUESTION 33

1.       Heuristics help people make faster, error-free decisions.

True

False

1 points   

QUESTION 34

1.       Framing effects may cause the same person to view the same new situation differently depending on whether that new situation makes him or her better or worse off.

True

False

1 points   

QUESTION 35

1.       The endowment effect describes when people value a good more when they own it than when they don't.

True

False

1 points   

QUESTION 36

1.       Behavioral economics demonstrates that the threat of rejection makes people less likely to engage in transactions.

True

False

Relative prices

The consumer's money income

The consumer's relative preferences for the two goods

All of the above

Explanation / Answer

ans 22=The consumer's relative preferences for the two goods

ans 23=true

ans 24=true

ans 25=D

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