Behavioral Economics Exam Solutions
Course Introduction
Behavioral Economics explores how psychological, cognitive, emotional, cultural, and social factors affect economic decisions and the consequences for market outcomes. Bridging insights from psychology and economics, this course examines why individuals sometimes make irrational choices, how heuristics and biases can influence financial decisions, and the impact of framing, fairness, and risk preferences on behavior. Through case studies, experiments, and real-world applications, students learn to identify deviations from traditional economic theories and understand the implications for public policy, marketing, and everyday economic life.
Recommended Textbook
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson
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558 Verified Questions
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Page 2
Chapter 1: Economic Models
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Sample Questions
Q1) Suppose you can write generic supply and demand curves such that \(\mathrm { Q
} _ { \mathrm { S } } = \mathrm { A } + \mathrm { BP }\) and \(Q _ { D } = D + C P\)
.Equilibrium price is given bY.
A) \(( A - D ) / ( C - B )\)
B) \(A - D\)
C) \(( A - D ) / ( B - C )\)
D) \(A\)
Answer: A
Q2) Given \(Y = f ( X , Z )\) which of the following are necessarily true?
A)Y is a linear function.
B)X,Z are dependent variables.
C)A contour line of this function would keep Y constant.
D)An increase in X would increase Y.
Answer: C
Q3) For the equation \(Y = \sqrt { X \cdot Z }\) the point \(X = 20\) , \(z = 5\) .
A) \(Y = 10\) yields a value of .
B)lies below the contour line that includes the point \(X = 15\) , \(z = 7\) .
C)lies on the same contour line as the point \(X = 12\) , .
D)Both a and b
Answer: D
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Chapter 2: Utility and Choice
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Sample Questions
Q1) Suppose a little girl likes peanut butter and jelly sandwiches with exactly 2T of jelly and 1T of peanut butter.Suppose further that her mom agrees to make sandwiches to those exact specifications and the price of peanut butter is $.25/T and the price of jelly is $.10/T.If she has $1.80 to spend on peanut butter and jelly ingredients (ignore the bread)in a week,how many sandwiches will she make?
A)1
B)2
C)4
D)8
Answer: C
Q2) Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25 and that a student's beverage budget is $20 per week.What is the algebraic expression of the budget?
A) \(20 = 2.5 C + 1.25 T\)
B) \(20 = 2.5 C\)
C) \(20 = = 1.5 T\)
D) \(20 = 1.25 C + 2.5 C\)
Answer: A
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Chapter 3: Demand Curves
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Sample Questions
Q1) If the prices of all goods increase by the same proportion as income,the quantity demanded of good X will
A)decrease.
B)increase.
C)remain unchanged.
D)change in a way that cannot be determined from the information given.
Answer: C
Q2) Consider the two statements: Which of the following is true?
I.X is an inferior good.
II.X exhibits Giffen's Paradox.
A)I implies II,but II does not necessarily imply I.
B)II implies I,but I does not necessarily imply II.
C)I and II are statements of the same phenomenon.
Answer: B
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Page 5
Chapter 4: Uncertainty
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Sample Questions
Q1) Suppose a family has saved enough for a 10 day vacation (the only one they will be able to take for 10 years)and has a utility function U = V<sup>1/2</sup> (where V is the number of healthy vacation days they experience).Suppose they are not a particularly healthy family and the probability that someone will have a vacation ruining illness (V = 0)is 30%.What is the expected value of V?
A)10
B)7
C)3
D)0
Q2) If a fair gamble is played many times,the combined monetary losses or gains will A)approach zero.
B)be negative.
C)be positive.
D)result in an outcome that cannot be determined without more information.
Q3) People who choose not to participate in fair gambles are called A)risk takers.
B)risk averse.
C)risk neutral.
D)broke.
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Page 6
Chapter 5: Game Theory
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Sample Questions
Q1) Consider the game between the teens from the previous question. In addition to any pure-strategy Nash equilibrium,there is another one in mixed strategies. In it,each teen chooses to declare with probability
A)0.52
B)0.5
C)0.34
D)0.1
Q2) Two games that differ only in the timing of moves-one simultaneous,the other sequential move-can sometimes have completely different subgame-perfect equilibria.
Why?
A)The second mover to choose non-credible threats.
B)The first mover can choose an action that it would deviate from if its action were secret.
C)Subgame-perfect equilibrium cannot be applied to simultaneous games.
D)All of the above.
Q3) The beauty of Nash's equilibrium concept is that
A)all games have one.
B)all games have no more than one.
C)all games have a rich set to choose from.
D)it is a Pareto optimum.
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Chapter 6: Production
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Sample Questions
Q1) The production function \(q = \sqrt { K L }\)
A)exhibits constant returns to scale and constant marginal productivities for K and L.
B)exhibits diminishing returns to scale and diminishing marginal productivities for K and L.
C)exhibits constant returns to scale and diminishing marginal productivities for K and L.
D)exhibits diminishing returns to scale and constant marginal productivities for K and L..
Q2) Suppose Q = K<sup>a</sup>L<sup>b</sup>,if a + b > 1 the isoquants will be
A)upward sloping.
B)progressively closer together at higher quantities.
C)progressively further apart at higher quantities.
D)equally spaced.
Q3) A firm is defined as
A)a president,some vice presidents,and some employees.
B)any organization that wants to make a profit.
C)any accumulation of productive assets.
D)any organization that turns inputs into outputs.
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Chapter 7: Costs
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Sample Questions
Q1) For any given output level,a firm's long-run costs
A)are always greater than or equal to its short-run costs.
B)are usually greater than or equal to its short-run costs except in the case of diminishing returns to scale.
C)are always less than or equal to its short-run costs.
D)are usually less than or equal to its short-run costs except in the case of diminishing returns to scale.
Q2) Suppose a production function is q = K<sup>1/2</sup>L<sup>1/3</sup> and in the short run capital (K)is fixed at 100. If the wage is $10 and the rental rate on capital is $20,the short run marginal cost is
A)1000 + q<sup>3</sup>
B) \(\frac { 3 q ^ { 2 } } { 100 }\)
C)q<sup>3</sup>
D)2q<sup>3</sup>
Q3) The accountant's cost of producing a bicycle refers to
A)the out-of-pocket payments made to produce the bicycle.
B)the value of the goods that were given up to produce the bicycle.
C)the bicycle's retail price.
D)the marginal cost of the last bicycle produced.
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Page 9
Chapter 8: Profit Maximization and Supply
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Sample Questions
Q1) The markup pricing technique involves determining the selling price of a good by adding a profit markup to minimum average cost.This would result in maximum profits only if
A)average cost were constant.
B)the markup were zero.
C)the markup varied with the elasticity of demand.
D)demand were inelastic.
Q2) A firm that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to
A)marginal cost
B)average cost.
C)price.
D)zero.
Q3) If a firm wished to maximize total revenues it should produce where
A)marginal cost is zero.
B)marginal revenue is zero.
C)marginal revenue is equal to marginal cost.
D)marginal revenue is equal to price.
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10
Chapter 9: Perfect Competition in a Single Market
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Sample Questions
Q1) The excess burden of a tax is
A)the amount by which the price of a good increases.
B)the loss of consumer and producer surplus that is not transferred elsewhere.
C)The amount by which a person's after-tax income decreases as a result of the new tax.
D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.
Q2) In the short run
A)new firms may enter an industry.
B)existing firms may change the quantity they are supplying.
C)price and quantity supplied are absolutely fixed.
D)quantity supplied is absolutely fixed.
Q3) Suppose demand for a good is Q<sub>D</sub> = 100 - P and supply is Q<sub>S</sub> = -20 + P.Suppose that a nationwide quota (of 20)is enforced so that more can be used in a war effort.What is the consumer surplus?
A)200
B)400
C)600
D)800
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Page 11
Chapter 10: General Equilibrium and Welfare
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Sample Questions
Q1) Markets can fail to achieve efficiency when
A)there are prices consumers do not think are fair.
B)there are wages workers do not think are fair.
C)trade puts people out of work.
D)there are buyers or sellers without adequate information about the quality of goods.
Q2) The rate of product transformation refers to
A)how a consumer can trade one good for another while still maximizing his or her utility.
B)how a firm can substitute one input for another and still maintain the same production level.
C)how production of one good can be substituted for another while still using a fixed supply of inputs efficiently.
D)how quickly a firm can produce a final good while starting with only natural resources.
Q3) Markets can fail to achieve efficiency when
A)there are prices consumers do not think are fair.
B)there are wages workers do not think are fair.
C)trade puts people out of work.
D)there are markets with imperfect competition.
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Chapter 11: Monopoly
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Sample Questions
Q1) Consider the same monopoly situation as in the previous question. The deadweight loss associated with this monopoly is
A)966
B)1,058
C)2,484
D)3,680
Q2) If a monopoly is maximizing profits,
A)price will always be greater than the elasticity of demand.
B)price will always equal marginal cost.
C)price will always be greater than marginal cost.
D)price will always equal marginal revenue.
Q3) The supply curve for a monopoly is given by
A)the firm's marginal cost curve above the average variable cost curve.
B)the one point on the demand curve that corresponds to the quantity for which price is equal to marginal cost.
C)the entire demand curve above the point where price is equal to average cost.
D)the monopolist does not have a well-defined supply curve.
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13
Chapter 12: Imperfect Competition
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Sample Questions
Q1) In the price-leadership model,
A)firms believe that price increases result in a very elastic demand,while price decreases result in an inelastic demand for their product.
B)each firm acts as a price taker.
C)one dominant firm takes the reactions of all other firms into account in its output and pricing decisions.
D)firms coordinate their decisions to act as multiplant monopolies.
Q2) Two firms engage in Bertrand competition in differentiated products. After doing all the appropriate calculations,you find the best-response functions are PB = 2.5 + .15PC and PC = 1.5 + .075PB. Without doing any further calculations,can you determine the relationship between their Nash equilibrium prices?
A)Yes,PB > PC
B)Yes,PC > PB
C)Yes,PB = PC
D)No; it cannot be determined.
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14
Chapter 13: Pricing in Input Markets
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Sample Questions
Q1) Suppose Woody Chuck's business is to clear trees for housing developments.Given the constraints of fixed capital,the production function is \(q = .01 \sqrt { L }\) .Suppose Woody Chuck's is one of many firms clearing land and that the market price per cleared lot is $5000.(Note \(M P _ { L } = \frac { .005 } { \sqrt { L } }\) )How many workers will Woody Chuck hire at w = 6.25?
A)1
B)4
C)16
D)25
Q2) If a profit-maximizing firm is a price taker in both the input and output markets,its marginal revenue product of labor is given by
A)the price of its output times labor's marginal physical productivity.
B)the marginal value product of labor.
C)the marginal revenue product of capital times the ratio of the wage rate to the rental rate on capital.
D)all of the above.
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15
Chapter 14: Capital and Time
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Sample Questions
Q1) Suppose a person's preferences are to "consumption smooth",which means they wish to get \(C _ { 1 } = C _ { 2 }\) for all incomes and interest rates.For any interest rate and \(Y _ { 1 } < Y _ { 2 }\) ,the person will ____ in the first period.
A)borrow
B)save
C)neither borrow nor save
Q2) The annual rental rate for a machine is
A)the yearly depreciation and maintenance costs for the machine.
B)the yearly interest costs associated with owning the machine.
C)the initial purchase price of the machine divided by the number of years the machine is expected to last.
D)the sum of the yearly depreciation,maintenance,and interest costs associated with owning the machine.
Q3) A fall in the real interest rate leads to
A)an increase in the rental rate on a machine.
B)a decrease in the rental rate on a machine.
C)no change in the rental rate on a machine.
D)a fall in the marginal productivity of capital.
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Page 16
Chapter 15: Asymmetric Information
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Sample Questions
Q1) A monopoly coffee shop is deciding on a menu of different cup sizes to sell to a population of consumers,some of whom are high demanders and some low demanders. How would the optimal menu differ depending on whether the consumers can be observably separated into the different types or not?
A)The menu is unaffected by type observability.
B)If types aren't observable,the large cup size should be increased to separate the high demander.
C)If types aren't observable,the small cup size should be increased to make it more attractive to low demanders.
D)If types aren't observable,the small cup size should be reduced to make it less attractive to high demanders.
Q2) Which of the following is an application of the moral-hazard problem?
A)a person buying insurance after a cancer diagnosis.
B)an salesperson who is not paid on commission being rude to customers.
C)coffee hounds buying the menu item meant for lower-demand consumers.
D)only inexperienced workers applying for a managerial job advertised with a relatively low salary.
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Chapter 16: Externalities and Public Goods
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Sample Questions
Q1) Suppose residents of Toadhop live on the Quabache River,a river prone to flooding.Suppose there are 1000 (type A)people who value flood control more than the 1000 (type B)people. Type A Demand Q<sub>D</sub> = 100 - P
Type B Demand Q<sub>D</sub> = 50 - P
Where Q measures the quality of flood control.If the price of a unit of flood control is $100,000 and the citizens of Toadhop gather for a townhall meeting to find the socially optimal level of flood control,and they are successful,how much will each type B individual contribute in total?
A)1875
B)1500
C)875
D)625
Q2) In the case of a negative externality,the social marginal cost will
A)exceed the private marginal cost.
B)be equal to private marginal cost.
C)fall short of private marginal cost.
D)bear no significant relation to private marginal cost.
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Page 18
Chapter 17: Behavioral Economics
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Sample Questions
Q1) Return to the market for cigarettes from the previous questions. Suppose the government implements the tax you found in the previous question. But suppose the government is making a mistake. The true demand curve is in fact ,and this is not a result of any behavioral bias. Compute the deadweight loss of the government's tax policy.
A)DWL = 0.
B)DWL = 500.
C)DWL = 1,000
D)DWL = 2,500.
Q2) Consider a version of the ultimatum game in which player A makes an integer offer {1,2 ,9} to player B. If B accepts,he or she gets that amount of money and A gets to keep the remainder of $10. If B rejects,both get nothing. Which of the following is an offer that arises in a subgame-perfect equilibrium assuming players only care about monetary payoffs?
A)1.
B)2.
C)4.
D)5.
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