Test Bank For Microeconomics Principles Applications and Tools 8 e 8th Edition Arthur Osullivan Steven Sheffrin Stephen Perez

Test Bank for Microeconomics: Principles, Applications, and Tools 8/E 8th Edition Arthur Oâ€
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Applications, and Tools 8/E 8th Edition Arthur
Oâ€™Sullivan, Steven Sheffrin, Stephen Perez
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Microeconomics: Prin., Apps, & Tools, 8e (O'Sullivan) TB1
Chapter 7 Consumer Choice: Utility Theory and Insights from Neuroscience
7.1 Traditional Consumer Choice: Utility Theory
1) How is utility defined?

A) ease of use
B) government provided goods like electricity
C) the satisfaction experienced from consuming a good
D) the change in benefit from producing one additional unit of a good
Answer: C
Diff: 1
Topic: Traditional Consumer Choice: Utility Theory
Skill: Definition
AACSB: Reflective Thinking
Learning Outcome: Micro-10
2) Consumers' ability to purchase a good or service is limited by:

A) their income only.
B) the prices for the goods or services only.
C) both the prices and their income.
D) their preferences.
Answer: C
Diff: 2
Topic: Consumer Constraints: The Budget Line
Skill: Conceptual
3) Which of the following statements about consumer choice theory is TRUE?

A) Given the limitations dictated by people's incomes and prices, it helps the consumer choose a
commodity bundle of the highest level of utility.
B) It provides insights into how consumers make decisions.
C) It helps us understand changes in consumption patterns.
D) All of the above are true about consumer choice theory.
Answer: D
Diff: 2
Skill: Conceptual
1
Copyright © 2014 Pearson Education, Inc.
4) A decrease in a consumer's budget set can be caused by:
A) an increase in prices.
B) a decrease in prices.
C) an increase in income.
D) a change in preferences.
Answer: A
Diff: 2
Skill: Conceptual
5) A consumer's budget set:

A) is the set of all affordable combinations of two goods.
B) includes only combinations of two goods that leave the consumer with leftover money.
C) includes only combinations of two goods that exhaust the budget.
D) Both A and C are correct answers.
Answer: A
Diff: 1
Skill: Definition
6) What is the consumer budget line?

A) It shows a consumer's tradeoff between two goods.
B) It shows the quantity of a single good that a consumer is willing to buy at different prices.
C) It shows combinations of two or more different consumers' budget set.
D) It includes all combinations of two goods that exhaust the consumer's budget.
Answer: D
Diff: 1
Skill: Definition
2
7) Which of the following statements is INCORRECT?
A) A consumer's budget line includes all the combinations of goods that exhaust the consumer's
budget.
B) The slope of the budget line equals the market tradeoff between two goods.
C) The slope of the budget line is the opportunity cost to a consumer of one good in terms of
another good.
D) The budget line represents what the consumer wants to do.
Answer: D
Diff: 1
Skill: Conceptual
8) Which of the following statements about a consumer's budget line is CORRECT?

I. The budget line shows all the combinations of two goods that exhaust the consumer's
budget.
II. The slope of the budget line shows the market tradeoff between two goods.
III. The budget line represents the consumer's preferences or tastes.
A) I only
B) I and II only
C) I and III only
D) II and III only
Answer: B
Diff: 2
Skill: Conceptual
3
9) Refer to Figure 7.1. Which of the following includes an unaffordable combination(s) of
movies and T-shirts?
A) A, B and C
B) B, C and D
C) C, D and F
D) A, C and E
Answer: C
Diff: 2
Topic: Consumer Constraints: The Budget Line, graphing
Skill: Analytical
AACSB: Analytic Skills
10) Refer to Figure 7.1. Which of the following includes an unaffordable combination(s) of
movies and T-shirts?
A) A, B and C
B) B, C and D
C) C, D and G
D) A, C and E
Answer: C
Diff: 2
Skill: Analytical
4
11) Refer to Figure 7.1. Which of the following are the combinations of movies and T-shirts that
would exhaust the budget?
A) A and C
B) C and E
C) B and G
D) A and B
Answer: B
Diff: 2
Skill: Analytical
12) Refer to Figure 7.1. Which of the following are the combinations of movies and T-shirts that
would exhaust the budget?
A) A and E
B) C and F
C) D and E
D) A and G
Answer: C
Diff: 2
Skill: Analytical
13) Refer to Figure 7.1. Which of the following statements is INCORRECT?

A) Bundle A costs less than bundle E.
B) Bundle C costs as much as bundle D.
C) Bundle B costs more than bundle C.
D) Bundle F costs more than bundle C.
Answer: C
Diff: 2
Skill: Analytical
5
14) Refer to Figure 7.1. Which of the following statements is INCORRECT?
A) Bundle F costs less than bundle D.
B) Bundle C costs as much as bundle E.
C) Bundle G costs more than bundle C.
D) Bundle B costs less than bundle C.
Answer: A
Diff: 2
Skill: Analytical
15) Suppose Jackie can buy either video games or DVDs. If the prices of both goods double, and
Jackie's income also doubles, what will happen to Jackie's budget line?
A) It will shift out.
B) It will shift in.
C) It will not change.
D) It will swivel so that the slope is twice as steep.
Answer: C
Diff: 2
Skill: Conceptual
16) What set of all possible combinations does the budget line show?
A) the set of all possible combinations that yield the same level of utility to the consumer
B) the set of all possible combinations that maximize a consumer's utility
C) the set of all possible combinations that can be purchased, given the consumer's income and
the price of the goods
D) the set of all possible combinations that are equilibrium points
Answer: C
Diff: 1
Skill: Definition
6
17) Suppose Carolyn is on a fixed monthly income of $200 to spend on food while she is in
medical school. Further, suppose the price of a single-serving macaroni and cheese is $4 and the
price of a baguette is $2. Which one of the following consumption combinations is possible
given these prices and income?
A) 40 macaroni and cheeses, 50 baguettes
B) 15 macaroni and cheeses, 80 baguettes
C) 20 macaroni and cheeses, 60 baguettes
D) 20 macaroni and cheeses, 100 baguettes
Answer: C
Diff: 2
Skill: Analytical
18) Suppose Mario is given a monthly income of $400 to spend on food while at college.
Further, suppose the price of a frozen meal is $8 and the price of a cup of soup is $4. Which one
of the following consumption combinations is possible given these prices and income?
A) 40 frozen meals, 50 cups of soup
B) 15 frozen meals, 80 cups of soup
C) 20 frozen meals, 60 cups of soup
D) 10 frozen meals 100 cups of soup
Answer: C
Diff: 2
Skill: Analytical
19) Suppose that Kelly has a monthly fixed income of $ 1000 and has $200 of her income
allocated to buy cookies and movies. Suppose that there is an increase in the price for movies but
not in the price for cookies, this will:
A) shift the budget line parallel to the left.
B) shift the budget line parallel to the right.
C) change the slope of the budget line.
D) not affect the budget line because income remains constant.
Answer: C
Diff: 3
Skill: Conceptual
7
20) Suppose that Joyce has a monthly fixed income of $ 2000 and has $100 of her income
allocated to buy shoes and pants. Suppose that there is a decrease in the price for shoes but not in
the price for pants, this will:
A) shift the budget line parallel to the left.
B) shift the budget line parallel to the right.
C) change the slope of the budget line.
D) not affect the budget line because income remains constant.
Answer: C
Diff: 3
Skill: Conceptual
21) The budget line will shift parallel to the right if:
A) income increases.
B) income decreases.
C) the price of the good on the vertical axis increases.
D) the price of the good on the vertical axis decreases.
Answer: A
Diff: 3
Skill: Conceptual
22) The budget line will shift parallel to the left if:
A) income increases.
B) income decreases.
C) the price of the good on the vertical axis increases.
D) the price of the good on the vertical axis decreases.
Answer: B
Diff: 3
Skill: Conceptual
8
23) A change in the slope of a budget line reflects:
A) a change in the marginal rate of substitution.
B) a change in the consumer's preferences.
C) a change in consumer income.
D) a change in the relative prices of the two goods.
Answer: D
Diff: 3
Skill: Conceptual
24) A change in the relative prices of two goods is represented graphically by:
A) a change in the slope of an indifference curve.
B) a rightward parallel shift of the budget line.
C) a leftward parallel shift of the budget line.
D) a change in the slope of the budget line.
Answer: D
Diff: 3
Skill: Conceptual
25) The absolute value of the slope of the budget line is:
A) the ratio of the marginal utility of one good to the marginal utility of the other good.
B) the ratio of the marginal utility of one good to the price of the other good.
C) the ratio of the price of one good to the price of the other good.
D) dependent on consumer income.
Answer: C
Diff: 2
Skill: Conceptual
26) The budget set is:

A) all the points on the budget line.
B) the area below the budget line.
C) the endpoints of the budget line.
D) all the points on the budget line and the area to the left of the budget line.
Answer: D
Diff: 1
Skill: Definition
9
27) Suppose that Helen has $50 to spend. Tacos cost $2 and burritos cost $5. Which of the
following combinations is NOT on her budget line?
A) 0 tacos and 10 burritos
B) 0 burritos and 25 tacos
C) 8 burritos and 5 tacos
D) 10 burritos and 3 tacos
Answer: D
Diff: 1
Skill: Analytical
28) Suppose that Jessica has a fixed income of $100 per month, which she spends entirely on
movies and paperback books. The price of movies is $5 and the price of paperback books is $10.
Which of the following combinations is NOT on her budget line?
A) 5 paperback books and 10 movies
B) 10 paperback books and 0 movies
C) 3 paperback books and 14 movies
D) 8 paperback books and 5 movies
Answer: D
Diff: 2
Skill: Analytical
29) Suppose that Jeremy has a fixed income of $150 per month, which he spends entirely on
movies and books. The price of movies is $5 and the price of books is $15. Which of the
following combinations does NOT exhaust his budget?
A) 3 books and 21 movies
B) 6 books and 12 movies
C) 5 books and 17 movies
D) 4 books and 18 movies
Answer: C
Diff: 2
Skill: Analytical
10
Figure 7.2
30) Refer to Figure 7.2. Assume that Ashley faces budget line AB with her $60 income. Then the
opportunity cost to her of a book is:
A) one hamburger.
B) two hamburgers.
C) three hamburgers.
D) four hamburgers.
Answer: B
Diff: 2
Skill: Analytical
31) Refer to Figure 7.2. Assume that Ashley faces budget line AB with her $60 income. Then the
opportunity cost to her of a hamburger is:
A) one book.
B) one half of a book.
C) one third of a book.
D) one fourth of a book.
Answer: B
Diff: 2
Skill: Analytical
11
32) Refer to Figure 7.2. Assume that Ashley faces budget line CD with her $120 income. Then
the prices of a hamburger and a book are:
A) $2 and $5, respectively.
B) $3 and $6, respectively.
C) $4 and $7, respectively.
D) $5 and $8, respectively.
Answer: B
Diff: 2
Skill: Analytical
33) Which of the following statements about marginal utility is CORRECT?

A) It is the change in total utility resulting from getting one additional unit of a good.
B) As consumption of a particular good increases, marginal utility decreases.
C) It is the satisfaction experienced from consuming a good.
D) A and B are correct.
Answer: D
Diff: 1
Topic: Total and Marginal Utility
Skill: Definition
34) If Maria gets 80 utils from consuming five cookies, 100 utils from consuming six cookies
and 120 utils from consuming seven cookies, then Maria's marginal utility from the sixth cookie
is:
A) 100 utils.
B) 80 utils.
C) 40 utils.
D) 20 utils.
Answer: D
Diff: 2
Skill: Analytical
12
35) If Joshua gets 200 utils from consuming three slices of pizza, 220 utils from consuming four
slices of pizza and 230 utils from consuming five slices of pizza, then the Joshua's marginal
utility from the fifth slice of pizza is:
A) 230 utils.
B) 30 utils.
C) 20 utils.
D) 10 utils.
Answer: D
Diff: 2
Skill: Analytical
36) If the consumer gets 40 utils from consuming four CDs, 45 utils from consuming five CDs
and 48 utils from consuming six CDs, then the consumer's marginal utility from the fifth CD is:
A) 5 utils.
B) 10 utils.
C) 42.5 utils.
D) 45 utils.
Answer: A
Diff: 2
Skill: Analytical
and 48 utils from consuming six CDs, then the consumer's marginal utility from the sixth CD is:
A) 3 utils.
B) 8 utils.
C) 46.5 utils.
D) 48 utils.
Answer: A
Diff: 2
Skill: Analytical
13
38) If Crystal gets 140 utils from eating one yogurt, 145 utils from eating two yogurts and 148
utils from eating three yogurts, then Crystal's total utility is:
A) increasing.
B) decreasing.
C) decreasing at decreasing rate.
D) constant.
Answer: A
Diff: 2
Skill: Analytical
and 48 utils from consuming six CDs, then the consumer's marginal utility is:
A) increasing.
B) decreasing.
C) constant.
D) increasing at an increasing rate.
Answer: B
Diff: 2
Skill: Analytical
40) Diminishing marginal utility implies:

A) as the consumption of a good increases marginal utility decreases.
B) as the consumption of a good increases marginal utility increases.
C) as the consumption of a good increases total utility decreases.
D) as the consumption of a good increases total utility increases.
Answer: A
Diff: 2
Skill: Conceptual
14
41) Suppose that for Sarah the marginal benefit per dollar spent on pork exceeds the marginal
benefit per dollar spent on chicken. Sarah can always increase her utility by buying:
A) more pork and less chicken.
B) less pork and more chicken.
C) more of both goods.
D) Sarah is already maximizing utility.
Answer: A
Diff: 2
Topic: Conditions for Utility Maximization
Skill: Analytical
42) Suppose that for George the marginal benefit per dollar spent on tuna is less than the
marginal benefit per dollar spent on ham. The consumer can always increase his utility by
buying:
A) more tuna and less ham.
B) less tuna and more ham.
D) The consumer is already maximizing utility.
Answer: B
Diff: 2
Skill: Analytical
43) Suppose that for Virginia the marginal benefit per dollar spent on make-up is less than the
benefit per dollar spent on clothes. Virginia can always increase her utility by buying:
A) more make-up and fewer clothes.
B) fewer make-up and more clothes.
D) Virginia is already maximizing utility.
Answer: B
Diff: 2
Skill: Analytical
15
44) Suppose that the marginal benefit per dollar spent on bicycles exceeds the marginal benefit
per dollar spent on skateboards. The consumer can always increase her utility by buying:
A) more bicycles and fewer skateboards.
B) fewer bicycles and more skateboards.
D) The consumer is already maximizing utility.
Answer: A
Diff: 2
Skill: Analytical
45) Suppose that the marginal benefit per dollar spent on pop tarts exceeds the marginal benefit
per dollar spent on waffles. The consumer can always increase her utility by buying:
A) more pop tarts and fewer waffles.
B) fewer pop tarts and more waffles.
D) The consumer cannot increase her utility.
Answer: A
Diff: 2
Skill: Analytical
46) Suppose that the marginal benefit per dollar spent on pop tarts is less than the marginal
benefit per dollar spent on waffles. The consumer can always increase her utility by buying:
A) more pop tarts and fewer waffles.
B) fewer pop tarts and more waffles.
D) The consumer cannot increase her utility.
Answer: B
Diff: 2
Skill: Analytical
16
47) A consumer should increase her consumption of good X relative to good Y if:
A) the marginal benefit per dollar spent on good X is greater than the marginal benefit per dollar
spent on good Y.
B) the marginal benefit per dollar spent on good X is smaller than the marginal benefit per dollar
spent on good Y.
C) the marginal benefit per dollar spent on good X is the same as the marginal benefit per dollar
spent on good Y.
D) none of the above
Answer: A
Diff: 2
Skill: Conceptual
48) A consumer should increase her consumption of good Y relative to good X if:
A) the marginal benefit per dollar spent on good X is greater than the marginal benefit per dollar
spent on good Y.
B) the marginal benefit per dollar spent on good X is smaller than the marginal benefit per dollar
spent on good Y.
C) the marginal benefit per dollar spent on good X is the same as the marginal benefit per dollar
spent on good Y.
D) none of the above
Answer: B
Diff: 2
Skill: Conceptual
Recall the Application about how marginal utility changes with the quantity consumed to
answer the following question(s). Neuroscientists offered subjects in an experiment varying
monetary rewards, and observed the neural activity in a subject's striatum region of the
brain.
49) Recall the Application. As the monetary reward increased, the utility value as measured in
neuron activity:
A) increased at an increasing rate.
B) increased at an decreasing rate.
C) decreased at an increasing rate.
D) decreased at an decreasing rate.
Answer: B
Diff: 2
Topic: Application 1, Measuring Diminishing Marginal Utility
Skill: Conceptual
17
50) Recall the Application. The larger the monetary reward offered to the subjects in the
experiment:
A) the higher the marginal utility and total utility of the reward money.
B) the lower the marginal utility and total utility of the reward money.
C) the lower the marginal utility and higher the total utility of the reward money.
D) the higher the marginal utility and lower the total utility of the reward money.
Answer: C
Diff: 2
Topic: Application 1, Measuring Diminishing Marginal Utility
Skill: Conceptual
51) Utility is the benefit a consumer gets from consuming a good.

Answer: TRUE
Diff: 1
Topic: Traditional Consumer Choice: Utility Theory
Skill: Definition
52) A consumer's budget line is very similar with a demand curve in that both curves show the
possible combination of two goods.
Answer: FALSE
Diff: 2
Skill: Conceptual
53) All the combinations of two goods on a consumer's budget line must generate different levels
of utility.
Answer: TRUE
Diff: 2
Skill: Conceptual
54) A consumer can afford any combinations of two goods on or below the budget line.
Answer: TRUE
Diff: 2
Skill: Conceptual
18
55) A consumer's budget set includes all affordable combinations of two goods.
Answer: TRUE
Diff: 1
Skill: Definition
56) The law of diminishing marginal utility is that as the consumption of a particular product
increases, marginal utility decreases.
Answer: TRUE
Diff: 2
Skill: Conceptual
57) Marginal utility of beer is the change in utility when production of beer changes.
Answer: FALSE
Diff: 1
Skill: Conceptual
58) If the consumer gets 30 utils from consuming four DVDs, 50 utils from consuming five
DVDs and 60 utils from consuming six DVDs, then the consumer's marginal utility from the
fifth DVD is 10 utils.
Answer: FALSE
Diff: 2
Skill: Analytical
59) Diminishing marginal utility is when total utility declines as a consumer consumes more of a
good.
Answer: FALSE
Diff: 2
Skill: Conceptual
19
60) The consumer's objective is to minimize the utility generated by a fixed budget.
Answer: FALSE
Diff: 1
Skill: Conceptual
61) Utility is maximized when the chosen bundle of goods satisfies the equimarginal rule and
when the chosen bundle is on the budget line.
Answer: TRUE
Diff: 2
Skill: Conceptual
62) If the marginal benefit per dollar spent on good X is greater than the marginal benefit per
dollar spent on good Y, the consumer should consume more X and less Y.
Answer: TRUE
Diff: 2
Skill: Conceptual
63) What does the consumer's budget line show?

Answer: The budget line shows what the consumer can do in the market place.
Diff: 2
Skill: Conceptual
64) Baseballs cost $5 each and baseball gloves cost $20. Assume you have $100 to spend on
these items. Putting baseballs on the vertical axis, draw the budget line representing this
situation. What is the slope of the budget line?
Answer: The budget line should be a straight line with vertical intercept at B = 20 (= $100/$5),
and horizontal intercept at G = 5 (= $100/$20). The slope is -4.
Diff: 2
Skill: Analytical
20
65) Explain what diminishing marginal utility is.
Answer: It is when marginal utility declines as consumption of a particular good increases.
Diff: 2
Skill: Conceptual
66) If the consumer gets 90 utils from consuming four movies, 120 utils from consuming five
movies and 140 utils from consuming six movies, calculate the consumer's marginal utility from
the fifth and sixth movies.
Answer: The fifth movie gives the consumer 30 utils of marginal utility and the sixth movie
provides the consumer with 20 utils of utility.
Diff: 2
Skill: Analytical
67) Explain the marginal principle.

Answer: The marginal principle says to increase the level of an activity as long as its marginal
benefit exceeds its marginal cost., and to choose the level at which the marginal benefit equals
the marginal cost.
Diff: 2
Topic: The Marginal Principle and the Equimarginal Rule
Skill: Definition
68) Explain the equimarginal rule.

Answer: The equimarginal rule says to pick the combination of two activities where the
marginal benefit per dollar for the first activity equals the marginal benefit per dollar for the
second activity.
Diff: 2
Topic: The Marginal Principle and the Equimarginal Rule
Skill: Definition
21
69) Explain why the equimarginal rule is a necessary condition for utility maximization.
Answer: The easiest way to explain this is to consider what would happen if the marginal
benefit per dollar spent on good X were not equal to the marginal benefit per dollar spent on
good Y. Suppose that the marginal benefit per dollar spent on good X exceeds the marginal
benefit per dollar spent on good Y. Then the consumer could spend one fewer dollar on Y and
one more dollar on X and still be within her budget constraint. She would lose utility equal to
approximately "the marginal benefit of good Y / the price of good Y," but would gain utility
equal to approximately "the marginal benefit of good X / the price of good X." Since the latter is
greater than the former, total utility would increase. Therefore utility could NOT have been
maximized before. A similar argument holds when the marginal benefit per dollar spent on good
X is smaller than the marginal benefit per dollar spent on good Y.
Diff: 2
Skill: Conceptual
22
7.2 The Law of Demand and the Individual Demand Curve
Figure 7.3
The price of Video Game rentals is $2 For MUA/$ and $4 for MUB/$.
The price of Energy Drinks is $2.
Budget = $28.
1) Refer to Figure 7.3. If the price of video game rentals is $4, the utility maximizing
combination is ________ video game rentals and ________ energy drinks.
A) 1; 4
B) 2; 10
C) 10; 4
D) 11; 10
Answer: B
Diff: 2
Topic: Effect of a Decrease in Price, graphing
Skill: Analytical
2) Refer to Figure 7.3. If the price of video game rentals is $4, the marginal utility per dollar at
the utility maximizing combination is ________ utils for video game rentals and ________ utils
for energy drinks.
A) 18; 18
B) 18; 16
C) 16; 16
D) 8; 16
Answer: C
Diff: 2
Skill: Analytical
23
3) Refer to Figure 7.3. A decrease in the price of video game rentals from $4 to $2 will:
A) increase the marginal utility per dollar of video game rentals.
B) decrease the marginal utility per dollar of video game rentals.
C) increase the marginal utility per dollar of energy drinks.
D) decrease the marginal utility per dollar of energy drinks.
Answer: A
Diff: 2
Skill: Conceptual
4) Refer to Figure 7.3. If the price of video game rentals drops from $4 to $2, the utility
maximizing combination is ________ video game rentals and ________ energy drinks.
A) 1; 4
B) 2; 10
C) 10; 4
D) 11; 10
Answer: C
Diff: 2
Skill: Analytical
5) Refer to Figure 7.3. If the price of video game rentals drops from $4 to $2, the marginal utility
per dollar at the utility maximizing combination is ________ utils for video game rentals and
________ utils for energy drinks.
A) 18; 18
B) 18; 16
C) 16; 16
D) 8; 16
Answer: A
Diff: 2
Skill: Analytical
24
6) The change in the quantity consumed that is caused by a change in the relative price of a good,
with real income held constant, refers to the:
A) substitution effect.
B) income effect.
C) equimarginal rule.
D) law of diminishing marginal utility.
Answer: A
Diff: 1
Topic: Income and Substitution Effects of a Decrease in Price
Skill: Definition
7) The change in the quantity consumed that is caused by a change in real income, with the
relative prices held constant, refers to the:
A) substitution effect.
B) income effect.
C) equimarginal rule.
D) law of diminishing marginal utility.
Answer: B
Diff: 1
Skill: Definition
8) Claudia spends her income on two goods, DVD rentals and chewing gum. She considers both
goods to be normal goods. If Claudia's income increases and the prices of the two goods remain
constant, she will:
A) rent more DVDs and purchase less chewing gum.
B) rent more DVDs and purchase more chewing gum.
C) rent fewer DVDs and purchase more chewing gum.
D) rent fewer DVDs and purchase less chewing gum.
Answer: B
Diff: 2
Skill: Conceptual
25
9) Claudia spends her income on two goods, DVD rentals and chewing gum. She considers both
goods to be normal goods. If Claudia's income stays constant and the relative price of DVD
rentals increases, she will:
A) rent more DVDs and purchase less chewing gum.
B) rent more DVDs and purchase more chewing gum.
C) rent fewer DVDs and purchase more chewing gum.
D) rent fewer DVDs and purchase less chewing gum.
Answer: C
Diff: 2
Skill: Conceptual
10) Dino spends his income on two goods, cigars and peppermints. He considers both goods to
be normal goods. If Dino's income decreases and the prices of the two goods remain constant, he
will purchase:
A) more cigars and fewer peppermints.
B) more cigars and more peppermints.
C) fewer cigars and more peppermints.
D) fewer cigars and fewer peppermints.
Answer: D
Diff: 2
Skill: Conceptual
11) Dino spends his income on two goods, cigars and peppermints. He considers both goods to
be normal goods. If Dino's income remains constant and the relative price of cigars decreases, he
will purchase:
A) more cigars and fewer peppermints.
B) more cigars and more peppermints.
C) fewer cigars and more peppermints.
D) fewer cigars and fewer peppermints.
Answer: A
Diff: 2
Skill: Conceptual
26
12) The relationship between the price of a good and the quantity that a single consumer is
willing to buy during a particular time period is shown by the:
A) market supply curve.
B) individual supply curve.
C) market demand curve.
D) individual demand curve.
Answer: D
Diff: 1
Topic: The Individual Demand Curve
Skill: Definition
13) Which of the following statements are TRUE about an individual demand curve?
A) An individual demand curve is negatively sloped and shows the price of a good and the
quantity that a single consumer is willing to sell during a particular time period.
B) An individual demand curve is positively sloped and shows the price of a good and the
quantity that all consumers are willing to buy during a particular time period.
C) An individual demand curve is negatively sloped and shows the quantity of a good that a
single consumer is willing to buy, and the amount of time to consume the good.
D) An individual demand curve is negatively sloped and shows the price of a good and the
quantity that a single consumer is willing to buy during a particular time period.
Answer: D
Diff: 1
Skill: Definition
14) Robert's demand curve for pizza:

A) shows the quantity of pizza that Robert consumes as his income changes.
B) assumes that the only variables that change are the price of pizza and the quantity of pizza
demanded by Robert.
C) makes no assumptions about Robert's income.
D) assumes that the only variable that changes is Robert's preference for pizza.
Answer: B
Diff: 2
Skill: Conceptual
27
15) Kim's demand curve for sodas:
A) assumes that the only variables that change are the price of sodas and the quantity of sodas
demanded by Kim.
B) shows the quantity of sodas Kim consumes as her preference for sodas change.
C) makes no assumptions about Kim's preference for sodas.
D) assumes that the only variable that changes is Kim's income.
Answer: A
Diff: 2
Skill: Conceptual
16) If the relative price of plasma TVs (a normal good) decreases and real income increases, the
quantity of plasma TVs increases, which is represented by a ________.
A) movement downward along the demand curve
B) movement upward along the demand curve
C) rightward shift of the demand curve
D) leftward shift of the demand curve
Answer: A
Diff: 2
Skill: Conceptual
17) For normal goods, the substitution effect and the income effect work in ________,
generating a ________ sloped demand curve.
A) opposite directions; downward
B) the same direction; downward
C) opposite directions; upward
D) the same; upward
Answer: B
Diff: 2
Skill: Conceptual
28
Recall the Application about how a simultaneous increase in the gasoline tax and decrease
in the income tax affect gasoline consumption to answer the following question(s). This
Application discusses a gasoline tax increase which is combined with a cut in income taxes
to insure that total tax revenue does not change.
18) Recall the Application. If a gasoline tax increase is combined with a cut in income taxes to
insure that total tax revenue does not change, the gasoline tax is:
A) ineffective.
B) regressive.
C) progressive.
D) revenue neutral.
Answer: D
Diff: 1
Topic: Application 2, A Revenue-Neutral Gasoline Tax
Skill: Definition
19) Recall the Application. If a gasoline tax increase is combined with a cut in income taxes to
insure that total tax revenue does not change, gasoline consumption will ________ due to the
substitution effect.
A) increase
B) decrease
C) remain unchanged
D) Any of the above could be correct.
Answer: B
Diff: 2
Topic: Application 2, A Revenue-Neutral Gasoline Tax
Skill: Conceptual
20) A decrease in the price of a product decreases the marginal utility per dollar of that product.
Answer: FALSE
Diff: 1
Topic: Effect of a Decrease in Price
Skill: Conceptual
21) An increase in the price of a product decreases the marginal utility per dollar of that product.
Answer: TRUE
Diff: 1
Topic: Effect of a Decrease in Price
Skill: Conceptual
29
22) An income effect comes about because a price reduction of one product increases a
consumers real income.
Answer: TRUE
Diff: 2
Skill: Conceptual
23) A substitution effect comes about because a price reduction of one product gives consumers
more income to spend on other goods.
Answer: FALSE
Diff: 2
Skill: Conceptual
24) If Linda's income goes up, she will consume more of all normal goods.
Answer: TRUE
Diff: 2
Skill: Conceptual
25) If consumer income and prices all are cut in half, then the consumers' real income doubles.
Answer: FALSE
Diff: 2
Skill: Conceptual
26) If consumer income and all prices double, then the budget line does not change.
Answer: TRUE
Diff: 2
Skill: Conceptual
30
27) The individual demand curve shows the relationship between quantity demanded and the
price of a product.
Answer: TRUE
Diff: 1
Skill: Definition
28) Explain the income and substitution effects.

Answer: The income effect is for people to consume more of normal goods when the prices of a
good falls increasing real income. The substitution effect is for people to consume more of a
relatively cheaper good whose price has fallen.
Diff: 2
Skill: Conceptual
7.3 The Neuroscience of Consumer Choice
1) The Nucleus Accumbens (NAcc) is the key region of the brain for:
A) cost valuation.
B) benefit valuation.
C) decision making.
D) all of the above.
Answer: B
Diff: 1
Topic: The Neuroscience of Benefit Valuation
Skill: Fact
2) The key region of the brain for benefit valuation is the:

A) insular cortex.
B) amygdala.
C) Nucleus Accumbens (NAcc).
D) prefrontal cortex (PFC).
Answer: C
Diff: 1
Skill: Fact
31
3) The strength of brain activity involving benefit valuation associated with a particular product
is determined by:
A) past experience.
B) monetary cost.
C) gut reaction.
D) opportunity cost.
Answer: A
Diff: 1
Skill: Fact
4) The greater the conjectured satisfaction a person experiences when buying a product, the:
A) greater the flow of dopamine to the receptors in the brain.
B) greater the number of choices available to the person.
C) greater the activity in the insula.
D) the lower the glucose level in the brain.
Answer: A
Diff: 1
Skill: Fact
5) When conjectures about the pleasure from a product are wrong:

A) dopamine levels increase.
B) gut instinct takes over.
C) the prefrontal cortex shuts down.
D) learning happens.
Answer: D
Diff: 2
Skill: Conceptual
6) To assess the benefit of a product never consumed, the brain bases its benefit valuation on:
A) chance.
B) past experiences with similar products.
C) the cost of the product.
D) The brain cannot value the benefit of a product never consumed.
Answer: B
Diff: 1
Skill: Conceptual
32
7) Over decades of choices, the dopamine system is used to learn the benefits for a wide variety
of products, with benefit valuations that can be used ________ for new purchases and ________
for repeat purchases.
A) directly; directly
B) directly; indirectly
C) indirectly; directly
D) indirectly; indirectly
Answer: C
Diff: 2
Skill: Conceptual
8) The benefit valuations for a product are gut feelings that occur:
A) after marginal thought.
B) instantaneously.
C) after careful thought.
D) after conscious weight is given to the cost of the product.
Answer: B
Diff: 1
Skill: Conceptual
9) The insular cortex is a key region of the brain for:

A) cost valuation.
C) decision making.
Answer: A
Diff: 1
Topic: The Neuroscience of Cost Valuation
Skill: Fact
33
10) The amygdala is a key region of the brain for:
A) cost valuation.
C) decision making.
Answer: A
Diff: 1
Skill: Fact
11) The key region of the brain for benefit valuation is the:
A) insular cortex.
B) amygdala.
D) Both A and B are correct.
Answer: D
Diff: 1
Skill: Fact
12) ________ activity increases when a person considers losing something of value.
A) Dopamine
B) Insula
C) NAcc
D) Glucose
Answer: B
Diff: 1
Skill: Fact
13) Money spent on one product cannot be used on another product, so the brain reacts in a
negative way to the thought of spending money. This is consistent with the principle of:
A) diminishing returns.
B) marginal utility.
C) opportunity cost.
D) voluntary exchange.
Answer: C
Diff: 1
Skill: Conceptual
34
14) The higher the price of a product, the:
A) lower the dopamine reaction in the brain.
B) weaker the gut feeling about purchasing the product.
C) larger the benefit received from the product.
D) stronger the insula activity in the brain.
Answer: D
Diff: 1
Skill: Conceptual
15) The cost valuations for a product are gut feelings that occur:
B) instantaneously.
D) after conscious weight is given to the perceived benefit of the product.
Answer: B
Diff: 1
Skill: Conceptual
16) In the Iowa Gambling Task, scientists have found that on average, subjects begin to have gut
feelings about drawing a card from an unfavorable deck after drawing:
A) 5 cards.
B) 10 cards.
C) 50 cards.
D) 60 cards.
Answer: B
Diff: 1
Topic: The Wisdom of Gut Feelings
Skill: Fact
35
17) In the Iowa Gambling Task, scientists have found that on average, subjects begin to respond
to gut feelings and stop drawing cards from an unfavorable deck after drawing:
A) 5 cards.
B) 10 cards.
C) 50 cards.
D) 60 cards.
Answer: D
Diff: 1
Skill: Fact
18) In the Iowa Gambling Task, scientists have found that on average, subjects are able to
articulate why they stopped drawing cards from unfavorable decks after drawing:
A) 5 cards.
B) 10 cards.
C) 50 cards.
D) 60 cards.
Answer: D
Diff: 1
Skill: Fact
19) The dopamine learning system generates gut feelings that are useful in assessing the benefits
and costs of actions. The expression of these gut feelings occur:
B) instantaneously.
D) after conscious weight is given to the perceived benefit and cost of the product.
Answer: B
Diff: 1
Skill: Conceptual
36
20) The prefrontal cortex (PFC) is the key region of the brain for:
A) cost valuation.
C) decision making.
D) all of the above
Answer: C
Diff: 1
Topic: Cognition and Choice
Skill: Fact
21) The key region of the brain for principal decision-making is the:
A) insular cortex.
B) amygdala.
D) prefrontal cortex (PFC).
Answer: D
Diff: 1
Skill: Fact
22) When making a decision, gut feelings trigger activity in the ________, and cognitive
considerations trigger activity in the ________.
A) insular cortex; Nucleus Accumbens
B) amygdala; insular cortex
C) Nucleus Accumbens; dorsal-lateral portion of the prefrontal cortex
D) dorsal-lateral portion of the prefrontal cortex; insular cortex
Answer: C
Diff: 2
Skill: Fact
37
23) Based on the strength of their gut feelings, consumers with relatively active ________ are
reluctant to spend money.
A) prefrontal cortexes
B) amygdalas
C) Nucleus Accumbens
D) insulas
Answer: D
Diff: 2
Skill: Conceptual
24) Cognitively active consumers tend to exercise ________ self control and have relatively
________ dorsal-lateral prefrontal cortexes.
A) more; active
B) more; inactive
C) less; active
D) less; inactive
Answer: A
Diff: 2
Skill: Conceptual
25) The brain gets most of its energy from:

A) dopamine.
B) blood sugar.
C) the prefrontal cortex.
D) electrons.
Answer: B
Diff: 1
Topic: Fuel for Cognition
Skill: Fact
38
26) The brain operates effectively only when it has a plentiful supply of:
A) dopamine.
B) insulin.
C) glucose.
D) carbon monoxide.
Answer: C
Diff: 1
Skill: Fact
27) A person with a low level of glucose is more likely to:

A) make an impulsive decision.
B) make a cognitive decision.
C) avoid gut feelings.
D) base decisions on both gut feelings and cognition.
Answer: A
Diff: 1
Skill: Fact
28) In making consumer decisions that involve many options, each decision engages the
cognitive process and ________ brain fuel. Eventually, the consumer is more likely to make
________ decisions.
A) generates; thoughtful
B) generates; impulsive
C) consumes; thoughtful
D) consumes; impulsive
Answer: D
Diff: 2
Skill: Conceptual
39
Recall the Application about the sales strategies of conventional stores and online retailers
to answer the following question(s).
29) Conventional stores encourage shoppers to buy products by boosting neural activity in the
region of the brain responsible for the valuation of the ________ of a product, and online
retailers encourage shoppers to buy products by boosting neural activity in the region of the brain
responsible for the valuation of the ________ of a product.
A) benefit; benefit
B) benefit; cost
C) cost; benefit
D) cost; cost.
Answer: B
Diff: 2
Topic: Application 3, Stores vs. Online Retailers
Skill: Conceptual
30) Conventional stores encourage shoppers to buy products by down-regulating neural activity
in the region of the brain responsible for the valuation of the ________ of a product, and online
retailers encourage shoppers to buy products by down-regulating neural activity in the region of
the brain responsible for the valuation of the ________ of a product.
A) benefit; benefit
B) benefit; cost
C) cost; benefit
D) cost; cost.
Answer: C
Diff: 2
Topic: Application 3, Stores vs. Online Retailers
Skill: Conceptual
31) Recent work in neuroscience shows that different regions of the brain are involved in the
valuation of the benefits and the costs of possible actions.
Answer: TRUE
Diff: 1
Skill: Fact
40
32) As more satisfaction is expected from the purchase of a product, the flow of dopamine in the
brain increases.
Answer: TRUE
Diff: 1
Skill: Fact
33) The benefit valuations generated by the dopamine system are cognitively generated.
Answer: FALSE
Diff: 1
Skill: Fact
34) The key regions of the brain responsible for cost valuation are the insula and the amygdala.
Answer: TRUE
Diff: 1
Skill: Fact
35) The higher the price of a product, the lower the opportunity cost of the product, and thus the
weaker the activity of the insula.
Answer: FALSE
Diff: 1
Skill: Conceptual
36) The dopamine learning system generates gut feelings which are based on experiences that go
back hours, or even years.
Answer: TRUE
Diff: 1
Skill: Fact
41
37) The prefrontal cortex uses both gut feelings and cognition in the decision-making process.
Answer: TRUE
Diff: 1
Skill: Fact
38) The brain gets most of its energy from dopamine.

Answer: FALSE
Diff: 1
Skill: Fact
39) The more blood sugar in the brain, the more thoughtful the decision-making process.
Answer: TRUE
Diff: 1
Skill: Fact
40) With respect to consumer choice, explain what the following regions of the brain are
responsible for:
1. Nucleus Accumbens
2. Insular cortex
3. Amygdala
4. Prefrontal cortex
Answer: 1. benefit valuation
2. cost valuation
3. cost valuation
4. comparing benefits and costs
Diff: 2
Topic: The Neuroscience of Consumer Choice
Skill: Fact
42
41) What is dopamine? With respect to consumer choice, when does dopamine flow increase and
when does it decrease?
Answer: Dopamine is the reward chemical of the brain. When it flows over receptors in your
brain, you feel good. Dopamine flow increases as conjectured satisfaction increases, and if the
conjectures are realized, the dopamine flow continues. Dopamine flow decreases if the
conjectures are invalidated.
Diff: 2
Skill: Fact
42) Explain the relationship between the price of a product, the opportunity cost of that product,
and activity in the insular cortex.
Answer: The higher the price of a product, the greater the opportunity cost of the product, and
the stronger the activity in the insular cortex. The lower the price of a product, the lower the
opportunity cost of the product, and the weaker the activity in the insular cortex.
Diff: 2
Skill: Conceptual
43) Explain the two ways that are relevant to consumer decisions in which people differ.
Answer: People differ based on the strength of their gut feelings and on cognitive weighting.
Consumers differ in the gut-feeling benefit of consuming a product, as represented by strength of
activity in the NAcc, and they differ in the gut-feeling cost of spending money, as represented by
the strength of activity in the insula. Consumers who are relatively inactive in the cognitive sense
tend to make impulse purchases, whereas consumers who are cognitively active tend to make
more thoughtful purchases.
Diff: 2
Skill: Conceptual
43
7.4 Consumer Decisions: Insights from Neuroscience
Figure 7.4
The above figure represents the marginal utility per dollar for candy bars and oranges for
Sophia. The price of each product is $0.50, and Sophia has a budget of $4.
1) Refer to Figure 7.4. If Sophia relies solely on gut feelings, she will purchase ________ candy
bars and ________ oranges to maximize utility.
A) 3; 5
B) 6; 2
C) 9; 0
D) 1; 5
Answer: B
Diff: 2
Topic: Dietary Choice: Donut vs. Apple, graphing
Skill: Analytical
2) Refer to Figure 7.4. If Sophia relies solely on gut feelings, she will maximize utility at a
marginal utility per dollar of ________ utils for candy bars and ________ utils for oranges.
A) 5; 11
B) 11; 5
C) 5; 5
D) 11; 11
Answer: D
Diff: 2
Skill: Analytical
44
3) Refer to Figure 7.4. If Sophia bases her choice on cognition, she will purchase ________
candy bars and ________ oranges to maximize utility.
A) 3; 5
B) 6; 2
C) 9; 0
D) 1; 5
Answer: A
Diff: 2
Skill: Analytical
4) Refer to Figure 7.4. If Sophia bases her choice on cognition , she will maximize utility at a
marginal utility per dollar of ________ utils for candy bars and ________ utils for oranges.
A) 5; 11
B) 11; 5
C) 5; 5
D) 11; 11
Answer: C
Diff: 2
Skill: Analytical
5) Refer to Figure 7.4. If Sophia goes from making her choice based on gut feeling to making her
choice based on cognition, bases her choice on cognition , she will:
A) increase orange and candy bar consumption.
B) decrease orange and candy bar consumption.
C) increase candy bar consumption at the expense of orange consumption.
D) increase orange consumption at the expense of candy bar consumption.
Answer: D
Diff: 2
Skill: Analytical
45
6) The best way to make healthy food choices is to shop:
A) when you are hungry.
B) using gut feelings.
C) when your glucose levels are low.
D) when your brain is fully fueled.
Answer: D
Diff: 1
Topic: Dietary Choice: Donut vs. Apple
Skill: Conceptual
7) Humans do a ________ job imagining the strength of future gut feelings, and do a ________
job imagining the gut-feeling benefits of future consumption.
A) good; good
B) good; poor
C) poor; good
D) poor; poor
Answer: D
Diff: 1
Topic: Present Bias: Spending versus Saving
Skill: Fact
8) Experiments by psychologists and neuroscientists have consistently shown that people

systematically ________ the strength of positive gut feelings and ________ the strength of
negative gut feelings.
A) underestimate; underestimate
B) underestimate; overestimate
C) overestimate; underestimate
D) overestimate; overestimate
Answer: A
Diff: 1
Skill: Fact
46
Figure 7.5
The consumer must decide how to split $20 between spending and saving.
9) Refer to Figure 7.5. If the consumer is subject to present bias, he will consume ________ now
and save ________ to maximize utility.
A) $12; $8
B) $18; $2
C) $12; $2
D) $0; $20
Answer: B
Diff: 2
Topic: Present Bias: Spending versus Saving, graphing
Skill: Analytical
10) Refer to Figure 7.5. If the consumer is subject to present bias, he will maximize utility at a
marginal utility per dollar of ________ utils for consumption and ________ utils for saving.
A) 15: 15
B) 15: 30
C) 30: 15
D) 30: 30
Answer: A
Diff: 2
Skill: Analytical
47
11) Refer to Figure 7.5. If the consumer is uses cognition to offset present bias, he will consume
________ now and save ________ to maximize utility.
A) $12; $8
B) $18; $2
C) $12; $2
D) $0; $20
Answer: A
Diff: 2
Skill: Analytical
12) Refer to Figure 7.5. If the consumer uses cognition to offset present bias, he will maximize
utility at a marginal utility per dollar of ________ utils for consumption and ________ utils for
saving.
A) 15: 15
B) 15: 30
C) 30: 15
D) 30: 30
Answer: D
Diff: 2
Skill: Analytical
13) Refer to Figure 7.5. If the consumer uses cognition to offset present bias, he will maximize
utility by ________ consumption and ________ saving.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
Answer: C
Diff: 2
Skill: Conceptual
48
14) With respect to present bias in the case of saving for retirement, the cost ________ and the
benefit ________.
A) occurs in the past; occurs in the present
B) occurs in the present; occurs in the future
C) occurs in the present and in the future; does not occur
D) occurs in the future; occurs in the present
Answer: B
Diff: 2
Skill: Conceptual
15) Some employers allow new employees to delay their investment in a retirement account for a
year or two. This approach puts the cost of saving for retirement in the ________ and the benefit
of saving in the ________.
A) present; present
B) present; future
C) future; present
D) future; future
Answer: D
Diff: 2
Skill: Conceptual
16) When purchasing a product with a credit card, the benefit of the product will be experienced
in the ________, and the cost will be experienced in the ________.
A) present; present
B) present; future
C) future; present
D) future; future
Answer: B
Diff: 2
Topic: Present Bias and Credit Cards
Skill: Conceptual
49
17) When purchasing a product with a credit card, our gut-feeling aversion to spending money is
________ and brain activity in the insula is ________.
A) strengthened; strengthened
B) strengthened; weakened
C) weakened; strengthened
D) weakened; weakened
Answer: D
Diff: 1
Topic: Present Bias and Credit Cards
Skill: Conceptual
18) The ________ in the present cost of smoking ________ the likelihood that a smoker will
quit.
A) increase; increases
B) increase; decreases
C) increase; does not change
D) decrease; increases
Answer: A
Diff: 2
Topic: Present Bias and Smoking
Skill: Conceptual
19) The decision to smoke cigarettes is subject to present bias because there is a temporal
mismatch between ________ and ________.
A) the present benefit; the present cost
B) the present benefit; the future cost
C) the future benefit; the present cost
D) the future benefit; the future cost
Answer: B
Diff: 2
Skill: Conceptual
50
20) Most people who gamble do so:
A) because the expected reward is positive.
B) despite the expected award being positive.
C) because the expected reward is negative.
D) despite the expected reward being negative.
Answer: D
Diff: 1
Topic: Gambling as a Consumer Good
Skill: Conceptual
Table 7.1
Draw Draw Draw

Ball #1 Ball # 2 Ball #3 Expected benefit
Monetary benefit ($) 0 0 750
Dopamine benefit
(utils) 0 40 50
The Table represents the payoffs for a gambling game. The player blindly draws one of
three balls, marked 1, 2, and 3, from an urn. The cost to play the game is $375 per draw.
21) Refer to Table 7.1. For this game, the expected monetary benefit is:
A) $0.
B) $250.
C) $375.
D) $750.
Answer: B
Diff: 2
Skill: Analytical
22) Refer to Table 7.1. For this game, the expected dopamine benefit is:
A) 0 utils.
B) 30 utils.
C) 40 utils.
D) 50 utils.
Answer: B
Diff: 2
Skill: Analytical
51
23) Refer to Table 7.1. For this game, the actual monetary benefit will exceed the expected
benefit:
A) if ball number 2 or number 3 are drawn.
B) only if ball number 3 is drawn.
C) if ball number 1 or number 2 are drawn.
D) The actual monetary benefit will never exceed the expected benefit.
Answer: B
Diff: 2
Skill: Analytical
24) Refer to Table 7.1. For this game, the dopamine benefit will exceed the expected benefit:
A) if ball number 2 or number 3 are drawn.
B) only if ball number 3 is drawn.
C) if ball number 1 or number 2 are drawn.
D) The actual dopamine benefit will never exceed the expected benefit.
Answer: A
Diff: 2
Skill: Analytical
Recall the Application about the appropriate amount for a cigarette tax to answer the
following question(s).
25) Recall the Application. A recent study concludes that to fully offset the present bias that
underlies the decision to smoke, the appropriate tax is approximately ________ per pack of
cigarettes.
A) $3
B) $7
C) $11
D) $19
Answer: C
Diff: 1
Topic: Application 4, Taxing Cigarettes to Offset Present Bias
Skill: Fact
52
26) A cigarette tax imposes a relatively ________ tax burden on low-income households, and the
authors of the study suggest that the cigarette tax would be ________ for low-income
households.
A) large; beneficial
B) large; detrimental
C) small; beneficial
D) small; detrimental
Answer: A
Diff: 1
Topic: Application 4, Taxing Cigarettes to Offset Present Bias
Skill: Fact
27) People systematically overestimate the strength of positive and negative gut feelings.
Answer: FALSE
Diff: 1
Skill: Conceptual
28) Accurately incorporating the present consequences of an action, but ignoring or

underestimating the future consequences is a description of present bias.
Answer: TRUE
Diff: 1
Skill: Conceptual
29) Present bias occurs because there is a mismatch in the timing of benefits and costs.
Answer: TRUE
Diff: 1
Skill: Conceptual
30) The decision to smoke cigarettes is not subject to present bias because the health risks of
smoking cigarettes are widely known.
Answer: FALSE
Diff: 1
Skill: Conceptual
53
31) Because the brain rewards near misses with pleasure-generating dopamine, gambling can be
considered a consumer good.
Answer: TRUE
Diff: 1
Skill: Conceptual
32) How does the introduction of cognition into a consumer's choice between healthy and
unhealthy food affect marginal utility per dollar and the quantity of healthy and unhealthy food
consumed? Assume utility is maximized.
Answer: The marginal utility per dollar will decrease for both the healthy and unhealthy food.
The quantity of healthy food consumed will increase and the quantity of unhealthy food
consumed will decrease.
Diff: 2
Topic: Dietary Choice: Donut vs. Apple
Skill: Conceptual
33) How does the introduction of cognition into a consumer's choice between consumption now
and saving affect marginal utility per dollar, the amount spent on consumption now, and the
amount saved? Assume utility is maximized.
Answer: The marginal utility per dollar will increase for both consumption and saving. The
amount spent on consumption now will decrease and the amount saved will increase.
Diff: 2
Skill: Conceptual
54
Table 7.1
Draw Draw Draw

Ball #1 Ball # 2 Ball #3 Expected benefit
Monetary benefit ($) 0 0 750
Dopamine benefit
(utils) 0 40 50
The Table represents the payoffs for a gambling game. The player blindly draws one of
three balls, marked 1, 2, and 3, from an urn. The cost to play the game is $375 per draw.
34) Refer to the Table. Calculate the expected monetary benefit and the expected dopamine
benefit from the game represented in the table.
Answer: Expected monetary benefit = 1/3 x $750 = $250.
Expected dopamine benefit = (1/3 x 0) + (1/3 x 40) + (1/3 x 50) = 30 utils.
Diff: 2
Skill: Analytical
7.5 Appendix: Mental Shortcuts and Consumer Puzzles
1) A simple rule for dealing with a complex situation which provides a "fast and frugal" decision
is a:
A) present bias.
B) dopamine reaction.
C) heuristic.
D) cognitive response.
Answer: C
Diff: 1
Topic: Mental Shortcuts and Consumer Puzzles
Skill: Definition
2) Mental accounting simplifies the decision-making process because it:

A) limits the calculation of tradeoffs.
B) eliminates prices from the decision-making process.
C) values all purchases equally.
D) only weighs benefits and not costs.
Answer: A
Diff: 1
Topic: Mental Accounting and Bundling
Skill: Conceptual
55
3) When a person's expressed valuation of a product is affected by the numbers in her head, this
is an important implication of:
A) mental accounting.
B) the decoy effect.
C) bundling.
D) the anchoring effect.
Answer: D
Diff: 1
Topic: Anchoring
Skill: Definition
4) Based on the anchoring effect, a seller has an incentive to plant a relatively ________ number
in the buyer's head, and a buyer has an incentive to plant a relatively ________ number in the
seller's head.
A) large; large
B) large; small
C) small; large
D) small; small
Answer: B
Diff: 1
Topic: Anchoring
Skill: Definition
5) The situation where marketers introduce products that are not designed to sell, but are
designed to manipulate consumers into choosing a similar but superior product is known as:
A) the decoy effect.
B) the anchoring effect.
C) bundling.
D) mental accounting.
Answer: B
Diff: 1
Topic: The Decoy Effect
Skill: Definition
56
6) In assessing numerical changes, the brain appears to be naturally inclined to work in
________ terms rather than ________ terms, leading to misguided decisions.
A) absolute; relative
B) relative; percentage
C) percentage; absolute
D) percentage; relative
Answer: C
Diff: 1
Topic: The Appeal of Percentage Changes
Skill: Fact
7) People tend to track consumption by the bundles in which a product is delivered rather than
the actual consumption of the product.
Answer: TRUE
Diff: 1
Topic: Mental Accounting and Bundling
Skill: Fact
8) With anchoring, there is a first-mover advantage in negotiations over price.

Answer: TRUE
Diff: 1
Topic: Anchoring
Skill: Conceptual
9) Marketers have no incentive to introduce products that are not designed to sell.
Answer: FALSE
Diff: 1
Topic: The Decoy Effect
Skill: Conceptual
10) In assessing numerical changes, the brain appears to be naturally inclined to work in absolute
terms rather than percentage terms.
Answer: FALSE
Diff: 1
Skill: Fact
57
Test Bank for Microeconomics: Principles, Applications, and Tools 8/E 8th Edition Arthur Oâ€
11) The text lists 4 types of puzzling consumer behavior which have been identified by
economists and psychologists. What are these 4 types of consumer behavior?
Answer: 1. Spending choices sometimes depend on the source of income.
2. The willingness to pay for a product sometimes is affected by irrelevant information.
3. Product choices are sometimes influenced by irrelevant information.
4. Decisions are sometimes based on percentage differences rather than absolute differences.
Diff: 2
Topic: Mental Shortcuts and Consumer Puzzles
Skill: Conceptual
12) Explain why a consumer may be willing to drive 20 miles to save 10% on a $3 gallon of
milk, but is not willing to drive the same 20 miles to save 3% on a $500 refrigerator.
Answer: In assessing numerical changes, the brain appears to be naturally inclined to work in
percentage or relative terms rather than absolute terms. Saving 10% seems better than saving 3%,
even though the 10% saving on the gallon of milk amounts to only $0.30, whereas the 3% saving
on the refrigerator amounts to $15.
Diff: 2
Skill: Conceptual
58
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7.1 Traditional Consumer Choice: Utility Theory

1) How is utility defined?

2) Consumers' ability to purchase a good or service is limited by:

3) Which of the following statements about consumer choice theory is TRUE?

5) A consumer's budget set:

6) What is the consumer budget line?

8) Which of the following statements about a consumer's budget line is CORRECT?

13) Refer to Figure 7.1. Which of the following statements is INCORRECT?

26) The budget set is:

33) Which of the following statements about marginal utility is CORRECT?

40) Diminishing marginal utility implies:

51) Utility is the benefit a consumer gets from consuming a good.

63) What does the consumer's budget line show?

67) Explain the marginal principle.

68) Explain the equimarginal rule.

14) Robert's demand curve for pizza:

28) Explain the income and substitution effects.

7.3 The Neuroscience of Consumer Choice

2) The key region of the brain for benefit valuation is the:

5) When conjectures about the pleasure from a product are wrong:

9) The insular cortex is a key region of the brain for:

25) The brain gets most of its energy from:

27) A person with a low level of glucose is more likely to:

38) The brain gets most of its energy from dopamine.

8) Experiments by psychologists and neuroscientists have consistently shown that people

Draw Draw Draw

28) Accurately incorporating the present consequences of an action, but ignoring or

Draw Draw Draw

7.5 Appendix: Mental Shortcuts and Consumer Puzzles

2) Mental accounting simplifies the decision-making process because it:

8) With anchoring, there is a first-mover advantage in negotiations over price.

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