Question 1

Suppose that Dair y Barn Foods produces a regular sour cream with 10 grams of fat per serving and a "low fat" sour cream with only 5 grams of fat per serving (assume that this is still considered a lot of fat to consume per serving) .According to prospect theory, how should Dairy Barn promote its "low fat" sour cream?

Accepted Answer

A)  It should make no mention of fat content, either in absolute terms or relative to its regular sour cream.
B)  It should advertise that the "low fat" sour cream has only "half the fat" of the regular sour cream.
C)  It should advertise that the "low fat" sour cream has only 5 grams of fat per serving.
D)  It won't matter what strategy Dairy Barn uses, as consumers are sufficiently informed as to not be affected by the advertising.E) C) and D)
F) B) and C)

Question 2

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Accepted Answer

A)  increasing the unit prices of their products.
B)  reducing the unit sizes of their products.
C)  producing more units of their products.
D)  passively accepting lower profits.E) A) and C)
F) A) and B)

Question 3

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Accepted Answer

A)  Neoclassical economics believes that government should play a minimal role in the economy, while behavioral economics calls for a more active role for government.
B)  Neoclassical economics assumes that people are rational in their decision making, while behavioral economics believes people make systematic errors.
C)  There is no real difference; behavioral economics just studies more intently how the rational decision-making process works.
D)  Neoclassical economics no longer offers valid explanations for economic outcomes, while behavioral economics does.E) All of the above
F) A) and B)

Question 4

(Consider This)  In sunny parts of the country, solar panels generate net financial benefits in just a few years, despite having high installation costs.Despite their long-run profitability, the high upfront costs discourage many from installing solar panels.From a behavioral economics perspective, this is the result of

Accepted Answer

A)  myopia.
B)  time inconsistency.
C)  status quo bias.
D)  the endowment effect.E) B) and D)
F) A) and B)

Question 5

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Accepted Answer

A) True 
 B)False

Question 6

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

Accepted Answer

A)  Carlos will keep all of the money for himself.
B)  Carlos will give all of the money to Darla.
C)  Carlos will split the money evenly with Darla.
D)  Carlos will split the money, keeping a little more than half for himself.E) A) and B)
F) B) and C)

Question 7

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Accepted Answer

A)  confirmation bias.
B)  framing effect.
C)  hindsight bias.
D)  self-serving bias.E) B) and D)
F) B) and C)

Question 8

"Heuristics" used by the human brain refer to the

Accepted Answer

A)  ability of the brain to make sophisticated and accurate mental processes.
B)  shortcuts that the brain uses in order to process information.
C)  elements in the brain that lead to consistent interpretation of all visual information.
D)  mental processes that burn and often waste a lot of energy.E) B) and C)
F) B) and D)

Question 9

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Accepted Answer

A)  price changes.
B)  financial incentives.
C)  firms' profits.
D)  uncertainty and fairness.E) None of the above
F) A) and D)

Question 10

Behavioral economics assumes that people are

Accepted Answer

A)  eager and able to estimate the benefits and costs of their decisions.
B)  ver y much aware of their preferences and are consistent in their preferences.
C)  prone to falling prey to temptation because they lack sufficient willpower.
D)  always focusing on their self-interest and maximizing their own net benefits.E) A) and D)
F) None of the above

Question 11

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Accepted Answer

A)  framing.
B)  mental accounting.
C)  anchoring.
D)  the endowment effect.E) A) and D)
F) None of the above

Question 12

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

Accepted Answer

A)  There is little difference, as fairness considerations lead to similar splits of the money in both games.
B)  The dictator game tends to result in a more even split of the money.
C)  The ultimatum game tends to result in a more even split of the money.
D)  Self-interest is revealed more strongly in the ultimatum game than in the dictator game.E) None of the above
F) A) and D)

Question 13

According to the concept of framing effects,

Accepted Answer

A)  advertising power is limited because of the inability of firms to change consumers' perspectives.
B)  all people will assign the same utility to a given situation, regardless of their previous status quo.
C)  whether a new situation is viewed as a gain or a loss depends on one's starting position.
D)  firms should never raise prices or reduce wages.E) All of the above
F) A) and D)

Question 14

Whenever Josh goes to his favorite restaurant, he wants to buy tiramisu, his favorite dessert.Despite the fact that he would enjoy the flavor of the tiramisu the same amount ever y time, Josh only buys it when others are having dessert and never buys it if he would be the only one having dessert.Behavioral economists would say that Josh's decision is affected by

Accepted Answer

A)  the availability heuristic.
B)  confirmation biases.
C)  framing effects.
D)  the self-serving bias.E) A) and B)
F) A) and C)

Question 15

Heuristics generally help people make faster decisions.

Accepted Answer

A) True 
 B)False

Question 16

(Consider This)  The hedonic treadmill refers to a phenomenon where

Accepted Answer

A)  people can't improve their economic well-being because prices increase as fast as wages.
B)  people can't get out of debt because credit card companies use anchoring to get consumers to carr y large balances on their accounts.
C)  increasing our level of consumption doesn't make us any happier in the long term.
D)  feelings of loss offset our feelings of gain, leaving us no happier in the long term.E) B) and D)
F) B) and C)

Question 17

Credit card companies require low minimum payments that impose significant interest costs on consumers choosing to pay the minimum.Recent legislation has required credit card companies to show on customer billing statements how much interest would be paid and how long it would take to repay the current balance if only the minimum is paid.Behavioral economists would expect this legislation to

Accepted Answer

A)  substantially increase monthly payments, as consumers make better decisions when they have more information.
B)  overcome the status quo bias that keeps people paying the minimum.
C)  cause credit card companies to increase the minimum payments.
D)  have little effect, as anchoring would keep many people paying the minimum.E) A) and D)
F) B) and D)

Question 18

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Accepted Answer

A) True 
 B)False

Question 19

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Accepted Answer

A)  anchoring effect.
B)  mental accounting effect.
C)  status quo bias.
D)  confirmation bias.E) A) and B)
F) B) and C)

Question 20

"Time inconsistency" refers to the

Accepted Answer

A)  tendency for policies with high short-run benefits to have high long-run costs.
B)  fallacy that what is true for the short run must be true for the long run.
C)  tendency to regularly misjudge in the present what you will do in the future.
D)  tendency to misjudge how long it will take to accomplish a future task.E) A) and C)
F) A) and B)

Exam 8: Behavioral Economics

Correct Answer
verified

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Correct Answer
verified

Behavioral economics assumes that people are

Correct Answer
verified

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Correct Answer
verified

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

Correct Answer
verified

"Time inconsistency" refers to the

Correct Answer
verified

Correct Answer
verified

(Consider This) The hedonic treadmill refers to a phenomenon where

Correct Answer
verified

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Correct Answer
verified

Heuristics generally help people make faster decisions.

Correct Answer
verified

"Heuristics" used by the human brain refer to the

Correct Answer
verified

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

Correct Answer
verified

According to the concept of framing effects,

Correct Answer
verified

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Correct Answer
verified

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Correct Answer
verified

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Correct Answer
verified

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Correct Answer
verified

Exam 8: Behavioral Economics

Correct AnswerverifiedShow Answer

Sellers' sense of fairness in pricing can sometimes lead them to pricing decisions that do not maximize profits.

Correct AnswerverifiedShow Answer

Behavioral economics assumes that people are

Correct AnswerverifiedShow Answer

Behavioral economists suggest that brand loyalty, which can be a source of monopoly power for the producer, may be explained by consumers' tendency to have the

Correct AnswerverifiedShow Answer

Prospect theory in behavioral economics predicts that as the price of flour increases, bakeries will try to avoid turning off their buyers by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Carlos and Darla are playing the dictator game.Carlos is assigned the role of dictator and given $20 to split between the two of them.Based on previous experiments with this game by behavioral economists, which is the least likely outcome?

Correct AnswerverifiedShow Answer

"Time inconsistency" refers to the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

(Consider This) The hedonic treadmill refers to a phenomenon where

Correct AnswerverifiedShow Answer

The process by which people isolate purchases and fail to consider all consumption options simultaneously is known as

Correct AnswerverifiedShow Answer

Heuristics generally help people make faster decisions.

Correct AnswerverifiedShow Answer

"Heuristics" used by the human brain refer to the

Correct AnswerverifiedShow Answer

Which of the following is a significant difference in the outcomes between the dictator game and the ultimatum game?

Correct AnswerverifiedShow Answer

According to the concept of framing effects,

Correct AnswerverifiedShow Answer

Wall Street bosses who believed that the huge profits of their firms prior to the financial crisis that started in 2007 was their personal accomplishment and that the financial crisis was due to overregulation by government illustrates the

Correct AnswerverifiedShow Answer

Which of the following best explains the difference between neoclassical economics and behavioral economics?

Correct AnswerverifiedShow Answer

Behavioral economics developed as a field of study that looks into how people make rational decisions based on self-interest.

Correct AnswerverifiedShow Answer

Neoclassical economics tends to make inaccurate predictions of human behavior in situations involving

Correct AnswerverifiedShow Answer

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