Marginal Utility
If current TU is 20 and MU for the 5th good consumed is 7u, what is the new TU?
27 utils
T/F: Behavioral economists believe that while people try to make rational decisions, they are frequently subject to systematic errors.
True
The law of diminishing marginal utility states that: total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed; beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer; it will take larger and larger amounts of resources beyond some point to produce successive units of a product.
beyond some point, additional units of a product will yield less and less extra satisfaction to a consumer.
"Heuristics" used by the human brain refer to the: ability of the brain to make sophisticated and accurate mental processes; shortcuts that the brain uses in order to process information; elements in the brain that lead to consistent interpretation of all visual information.
shortcuts that the brain uses in order to process information.
John tends to only pay attention to information that agrees with what he already believes. John is exhibiting which cognitive bias?: Self-serving bias; Hindsight bias; Confirmation bias
Confirmation bias
If the total utility between the 3rd and 4th good consumed increases from 54u to 65u, what is the marginal utility of the 4th good?
11 utils
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 neoclassical economist would expect Susie to: carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat; eat more sugary treats than is optimal, as she likely gives more weight to present events and outcomes than to ones in the future; determine her fair share of the sugary treats available, and only eat those.
carefully weigh the short-term benefits against the long-term costs and make a rational decision about how many treats to eat.
T/F: If Marginal utility is diminishing, total utility must also be declining.
False
T/F: Placement of goods in grocery and other retail stores is often done with the objective of encouraging impulse buying.
True
Emily has a tendency to attribute her successes to internal, personal factors (like her skill or effort) and blame failures on external, situational factors (like a mean teacher or not enough study tools). Emily seems to be exhibiting: Self-serving bias; Confirmation bias; Overconfidence Effect
Self-serving bias
The first mile of running gives Chris 36 utils, the second gives an additional 40 units, the third gives an additional 50 units, and the fourth gives an additional 42 units. His total utility from running five miles is 200 utils. The marginal utility of the fifth mile: cannot be determined with the information given; is 58 utils, is 32 utils.
32 utils
T/F: Someone who pays $800 to fly from one city to another instead of paying only $100 for a bus trip between the two cities is making an irrational choice and is thus not maximizing his utility.
False
If marginal utility for the first three goods consumed is 15u, 14u, and 13u respectively, the total utility would be:
42 utils
Statistically, people are more likely to perish in an automobile accident than in a plane crash, yet because of the media attention given to plane crashes, people regularly report and exhibit a fear of flying over a fear of driving or riding in a car. Behavioral economists would explain this as the result of: hindsight bias; calculation disrupted by imperfect information; the availability heuristic.
the availability heuristic.
Planning fallacy
The first mile of running gives Owen 36 utils and the second gives him an additional 40 utils. His total utility from three miles of running is 100 utils. The marginal utility of the third mile is: 64 utils; 24 utils; 33.3 utils.
24 utils
Which of the following assumptions about human behavior is most likely to be accepted by behavioral economists?: People have preferences that are unstable and vary by context; People are almost entirely self-interested in their behavior; People eagerly and accurately calculate the benefits and costs of their decisions.
People have preferences that are unstable and vary by context.
Between the 9th and 10th unit of a good consumed, the total utility decreases from 85u to 75u. What is likely?: The MU of the 10th good consumed was negative due to the law of diminishing marginal utility; the MU of the 10th good was higher than the 9th good due to the law of diminishing marginal utility; the cost of producing the 10th good was lower due to the law of diminishing marginal utility.
The MU of the 10th good consumed was negative due to the law of diminishing marginal utility
High-end retailers use expensive packaging to charge higher prices and boost revenue. How would neoclassical and behavioral economists view this strategy?: Neither would view it as effective because it has no impact on the utility of the actual product; Neoclassical economists would not expect buyers to be influenced by the packaging and behavioral economists would expect it to increase purchases by increasing perceived value; Both would view it as effective because it increases the value of the product.
Neoclassical economists would not expect buyers to be influenced by the packaging; behavioral economists would expect it to increase purchases by increasing perceived value.
After the release of a company’s disappointing quarterly report, many investors claim they “knew all along” that the stock price would fall. This is due to the: Framing effect; Overconfidence effect; Hindsight bias
Hindsight bias
Joe says, "You would have to pay me $30 to attend that pro wrestling event." For Joe, the marginal utility of the event is: zero; positive, but declines rapidly; negative; positive, but less than the ticket price.
Negative
Neoclassical economists believe that people: often succumb to temptation; often do a poor job making long-run economic decisions; assess current and future options equally well.
assess current and future options equally well
After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your choices indicate that the: marginal utility for four pizza slices was negative; marginal utility for the fourth slice was the largest among all slice; marginal utility was positive for the fourth slice and negative for the fifth slice.
marginal utility was positive for the fourth slice and negative for the fifth slice
According to behavioral economists, the human brain: makes most decisions based on careful calculation of benefits and costs; employs heuristics in decision making that are slow but generally error free; uses evolutionary-developed heuristics to make many decisions.
uses evolutionary-developed heuristics to make many decisions.
When asked whether they would support a new tax policy, people are more likely to agree if it’s described as “helping low-income families” rather than “increasing government spending.” Which cognitive bias is this?: Framing effect; Availability heuristic; Overconfidence effect
Framing effect