Economics 101: Principles of Microeconomics Ch 3. Consumer Behavior & Microeconomics

consumer

considered a person, group of people or organizations that are the final users of a product or service

microeconomics

understanding individual consumer decision making and how it affects businesses

What theory is concerned with understanding individual consumer decision making and its impact on businesses?

1. Supply and demand

2. Keynesian economic theory

3. Microeconomics

4. Macroeconomics

Microeconomics

What percentage of the United States economy is supported by consumer spending?

1. 70%

2. 55%

3. 90%

4. 30%

70%

According to microeconomics, how are consumers MOST likely to behave in the marketplace?

1. Consumers are loyal to their favorite stores and brand names.

2. Consumers will buy anything as long as they like the way it looks.

3. Consumers care only about the name or label and not cost.

4. Consumers want to achieve the most happiness for the lowest cost.

Consumers want to achieve the most happiness for the lowest cost.

Why do businesses care about microeconomic assumptions about consumer behavior?

1. It is vital for businesses when selling their products in downturned markets.

2. It is important for businesses when making fun, hip products for young consumers.

3. It is vital for businesses when pricing their products in competitive markets.

4. It is important for businesses when applying marketing strategies and gimmicks.

It is vital for businesses when pricing their products in competitive markets.

In microeconomics, which of the following is considered a consumer?

1. A person who starts a company based on the perceived need for a good or service.

2. A person who demands products and services at a specific price and volume.

3. A person who consumes goods and services whether they can pay for them or not.

4. A person, group or organization that is the final user of a product or service.

A person, group or organization that is the final user of a product or service.

Utility

usefulness, you’ll find in a given activity

Sunk Cost

the cost has already been sunk, or lost

Jennifer really enjoys watching hockey, but she doesn't have very much money. Which of the following will most likely maximize her utility?

1. Paying $100 for box seats at a football game.

2. Paying $20 for decent seats at a hockey game.

3. Paying $10 for decent seats at a football game.

4. Paying $200 for box seats at a hockey game.

Paying $20 for decent seats at a hockey game.

What is a sunk cost?

1. Money that has been lost and cannot be regained.

2. A cost for a good that keeps dropping.

3. Money that has been earned and hidden.

4. A low cost for a good.

Money that has been lost and cannot be regained.

When is it reasonable to throw money in the air with abandon?

1. If someone has enough money to afford it.

2. If, for the owner of that money, that is the best use they can think of to bring them utility.

3. If you are really happy.

4. It is never rational to do so.

If, for the owner of that money, that is the best use they can think of to bring them utility.

Which of the following is another way of describing why it's best to not get upset over a sunk cost?

1. Sunk costs are unavoidable.

2. Sunk costs are best remembered for the good times.

3. Sunk costs are like buses; another will be around in 10 minutes.

4. Don't cry over spilt milk.

Don't cry over spilt milk.

How can utility change?

1. Utility changes as an action becomes more popular.

2. Circumstances can cause the utility gained by a specific action to change.

3. Utility is always increasing.

4. Utility gained from an action never changes.

Circumstances can cause the utility gained by a specific action to change.

Individual Demand Curve

• a demand curve that is specific to one person

• everyone has individual demand curves for goods that they purchase

• shifts to the curve, through increased or decreased demand, could occur and change the price and the quantity demanded

Individual Equilibrium Point

where the price and quantity are set

A rightward shift of the individual demand curve reflects which of the following?

1. A person is willing to pay less for more of a good.

2. A person is willing to pay more for more of a good.

3. A person is willing to pay more for less of a good.

4. A person is willing to pay less for less of a good.

A person is willing to pay more for more of a good.

At which point do the supply and demand curves meet?

1. Individual supply point

2. Individual demand point

3. Individual fair point

4. Individual equilibrium point

Individual equilibrium point

A sale on beach balls would cause:

1. A demand shift to the right.

2. A supply shift to the left.

3. A demand shift to the left.

4. A supply shift to the right.

A supply shift to the right.

Maia has recently developed an allergy to peanuts. This will cause:

1. The supply curve for peanuts to shift to the left.

2. The supply curve for peanuts to shift to the right.

3. Her individual demand curve to shift to the right.

4. Her individual demand curve to shift to the left.

Her individual demand curve to shift to the left.

How many people does an individual demand curve track?

1. An entire economy

2. 100

3. 1

4. 2

1

Market Demand Curve

• formed by adding all the individual demand curves into one massive curve

• drastic slopes in goods that are more exclusive 

• flatter slopes for more common goods

• whole markets can be shifted by effect of a few individuals

Equilibrium Point

demand and supply curves intersect

What would happen to the demand curve when a large segment of the population would have a decreased demand for a product?

1. It would remain fairly constant.

2. It would move to the left slightly.

3. It would move to the right drastically.

4. It would move to the left drastically.

It would move to the left drastically.

What occurs in the economy when the market demand curve and the supply curve intercept?

1. The triple witching hour

2. The sales optimization point

3. The tipping point

4. The equilibrium point

The equilibrium point

What will happen when a large segment of the population has increased demand for a product?

1. The market demand curve will adjust upward by a large factor.

2. The market demand curve will stay at the same point it was at already.

3. The market demand curve will move right by a large factor.

4. The market demand curve will move left by a large factor.

The market demand curve will move right by a large factor.

What factors go into generating the market demand curve?

1. Adding up all the individual demand curves of a given market for a specific product.

2. Adding up the past sales of a given product and projecting future demand.

3. Finding the intercept point between the supply and demand curves.

4. It is a fairly random process that can not be easily determined.

Adding up all the individual demand curves of a given market for a specific product.

Why is the real equilibrium point difficult to find?

1. Demand is always slightly fluctuating.

2. Demand changes on a day-to-day basis.

3. Consumers buy products for unknowable reasons.

4. It is hard to model the equilibrium point.

Demand is always slightly fluctuating.

Market Demand Curve

• shows the demand of all purchasers within a given market

• the curve that results from combining every individual demand curve in a given market

• subject to the same rules of any other demand curve, although on much larger scale

• producers put the market demand curve to work

What does the market demand curve show?

1. The demand for a specific good in a given market

2. The demand for a specific good by a specific person

3. The total demand for all goods across an economy

4. The demand for all goods in a given market

The demand for a specific good in a given market

Who would you expect to get the MOST use out of a market demand curve for bottled water?

1. A consumer

2. A water salesman

3. A plastic company

4. A country

A water salesman

Maggy adored eating lollipops until she suddenly got sick and decided not to eat any more lollipops.

1. Determine what will happen to the market demand curve for lollipops in that area.

2. It will shift to the right by a large amount.

3. It will shift to the left by a large amount.

4. It will shift to the left, slightly.

5. It will shift to the right, slightly.

It will shift to the left, slightly.

Choco Company Ltd sells chocolates and has noted a decrease in the demand for chocolate across the board due to a dissatisfaction in the taste.

1. How should the company react?

2. The company needs to readjust to make the chocolates more palatable.

3. The company needs to think about manufacturing other products.

4. The company needs to figure out how to lure those customers back.

5. The company needs to close down business within a reasonable amount of time.

The company needs to readjust to make the chocolates more palatable.

Which would have the biggest effect on a market demand curve for a whole city?

1. Someone cutting their consumption by 50%.

2. A group of 100 people stop using the good.

3. The supply of a good by a new manufacturer.

4. The whole city limiting their use of the good by 15%.

The whole city limiting their use of the good by 15%.

Substitution Effect

• replacing one product with a similar, lower-priced option

• causes consumers to spend less not only on a substitute good, but also to a lesser degree on complementary goods when prices are raised for the orginial good

Income Effect

• ability of earnings to impact purchasing decisions

• relative changes in a person’s income will likewise cause relative changes in a person’s spending 

If I take a pay cut of 10%, what will likely happen to my spending?

1. I cut spending as much as possible since I will begin to be more frugal in all areas.

2. My spending habits will not change.

3. I will spend 20% less on goods

4. I will spend 10% less on goods.

I will spend 10% less on goods

Good A and Good B are complementary goods. If the price of Good A rises, what is likely to happen to Good B?

1. More people will buy it.

2. Fewer people will buy it.

3. Good B will not be affected.

4. People will have an increased awareness that it is unnecessary.

Fewer people will buy it.

If you go to a coffee shop to buy coffee and end up also buying a cake pop, the cake pop is which kind of good?

1. A supplementary good.

2. A substitute good.

3. An excessive good.

4. A complementary good.

A complementary good.

Due to the substitution effect, if the price of a good is increased, people will:

1. Substitute it with a similar good that is cheaper.

2. Substitute it with a more expensive good.

3. Save more money as they see prices rising.

4. Spend less on that good.

Substitute it with a similar good that is cheaper.

If I receive a salary raise of 10%, the income effect says that I will:

1. Be willing to spend 10% more on my purchases.

2. Be willing to spend 15% more on my purchases.

3. Be willing to spend 5% more on my purchases.

4. Be forced to spend 10% less on my purchases.

Be willing to spend 10% more on my purchases.

Normal Good

any good where there is a direct relationship between income changes and the demand curve

Inferior Good

• any good where there is an inverse relationship between changes in income and a demand curve

• generic products, used, or discounted items 

What is the definition of a good where there is an inverse relationship between changes in income and a demand curve?

1. Normal

2. Inferior

3. Financial

4. Impulse

Inferior

Susan is analyzing a demand curve for goods with income on the vertical axis instead of price. She observes that the curve shifts to the right and increases to show a direct relationship. What can Susan conclude about this curve?

1. It represents an impulse purchase.

2. It represents an inferior good.

3. It represents a routine purchasing.

4. It represents a normal good.

It represents a normal good.

As a consumer's income increases, he or she will purchase more _____, such as _____.

1. inferior goods; canned foods

2. normal goods; used cars

3. inferior goods; home services

4. normal goods; technology equipment

normal goods; technology equipment

All of the following are normal goods EXCEPT:

1. A bottle of wine

2. A generic drug

3. A new car

4. A flower bouquet

A generic drug

A used laptop is an example of a(n):

1. Inferior good

2. Impulse good

3. Mechanical good

4. Normal good

Inferior good

Engel Curve

• way of seeing how changes in income change the demand for certain goods

• useful for economists from the perspective of trying to figure out the demand for certain products given movements in the market status

• changes to the Engel curve prompt changes in producer supply when faced with both higher wages and lower wages

How can producers use Engel curves?

1. To determine how much of a given good consumers can afford based on their income.

2. To determine how much of a given good consumers can afford based on supply.

3. To determine how much of a given good consumers can afford based on demand.

4. To determine how much of a given good consumers can afford based on its popularity.

To determine how much of a given good consumers can afford based on their income.

What does an Engel curve show?

1. How supply of a good changes with changes in income

2. How supply of a good changes with demand

3. How demand for a good changes with supply

4. How demand for a good changes with changes in income

How demand for a good changes with changes in income

Why does the demand for a normal good cease at the end of its Engel curve?

1. Because people only need so much of a given good.

2. Because people can't afford to buy any more of the good.

3. Because no more of the good can be made.

4. Because there are only so many income brackets.

Because people only need so much of a given good.

What is the shape of the Engel curve of a normal good?

1. Starting high, falling as it moves to the right, eventually stopping

2. Starting low, rising as it moves to the right, eventually stopping

3. Concave curve

4. Straight line

Starting low, rising as it moves to the right, eventually stopping

What is the shape of the Engel curve of an inferior good?

1. Starting low, rising as it moves to the right, eventually stopping

2. Starting high, rising as it moves to the left, eventually stopping

3. Straight line

4. Concave curve

Starting high, rising as it moves to the left, eventually stopping

Consumer Preference

a set of assumptions that focus on consumer choices that result in different alternatives such as happiness, satisfaction, or utility

utility

the total satisfaction of consuming a good or service

Completeness

when the consumer does not have indifference between two goods

Transitivity

defining a relationship between goods such as if a consumer prefers good A to good B, and prefers good B to good C, then the consumer should prefer good A to good C

Non-Satiation

more of a good is always better as long as it does not affect the consumer’s ability to utilize all other goods

Cindy buys five pairs of shoes and is very happy with her purchase. Even though she has many shoes, she thinks about buying more the next week. How would economists describe Cindy's desire to keep shopping?

1. Non-Satiation

2. Completeness

3. Transitivity

4. Corruptness

Non-Satiation

What assumption focuses on consumer choices that result in different outcomes such as happiness, satisfaction, or utility?

1. Consumer power

2. Consumer support

3. Consumer decisions

4. Consumer preference

Consumer preference

Frank goes to the Honda dealership to look for a new car. Not satisfied, he then goes to the Subaru dealership to view their inventory. How would an economist define the fact that Frank prefers Subarus over Hondas?

1. Completeness

2. Non-Satiation

3. Persuasiveness

4. Transitivity

Completeness

How is the total satisfaction of consuming a good or service described?

1. Impact

2. Volition

3. Utility

4. Demand

Utility

What would explain why a consumer prefers good 1 to good 2, and prefers good 2 to good 3 and thus should prefer good 1 to good 3?

1. Transitivity

2. Relational Fullness

3. Complexity

4. Non-Satiation

Transitivity

Making Assumptions About Consumers

an integral part of economics

utility

the usefulness of something to an individual

optimization

people are not only always trying to maximize their utility, but they are always interested in new ways of doing so

Which of the following is an example of a preference?

1. Consumers preferring to save money rather than spend it on a good.

2. Consumers using one brand of toilet paper over another.

3. Consumers buying guns instead of butter.

4. Consumers only purchasing one good.

Consumers using one brand of toilet paper over another.

Define optimization.

1. The idea that consumers want the newest thing, no matter what the cost or actual gain in utility.

2. The idea that consumers are always trying to not only maximize their utility but find new ways of doing so.

3. The idea that consumers will always spend money when there is excess income.

4. The idea that consumers will optimize their disposable income to make more income.

The idea that consumers are always trying to not only maximize their utility but find new ways of doing so.

What is the term used by economists that refers to the reality that each consumer has limits?

1. Limitations

2. Resourcing

3. Constraints

4. Optimization

Constraints

ABC Clothing primarily sells shirts and pants, but they are across the street from XYZ Clothing who also sells primarily shirts and pants. How could ABC help their consumers begin to prefer their brand to XYZ?

1. Move their storefront away from XYZ in order to not have a competitor so close by.

2. Offer a 20% off coupon for all new customers making their first purchase at ABC.

3. There is no reliable option according to economists that would help ABC become the preferred brand.

4. Prove that XYZ is making inferior products from a manufacturing standpoint.

Offer a 20% off coupon for all new customers making their first purchase at ABC.

What can economists assume about consumers?

1. Their decisions will always favor the cheapest good.

2. Their decisions will maximize utility.

3. Their decisions will not optimize their resources.

4. Their decisions will always make sense in the long-run.

Their decisions will maximize utility.

Budget Contraints

the limits that our money places on our purchasing

Rate of Transformation

measures the amount of two goods you can get for a specific amount of money

Budget Line

rate of transformation curve

What is a budget constraint?

1. The limit of one's spending

2. The average of one's spending

3. The maximum of one's earning potential

4. The minimum of one's spending

The limit of one's spending

What do the points to the right of the rate of transformation curve tell us about a budget?

1. They indicate that a consumer can afford a previously unaffordable purchase.

2. They indicate that money has been saved.

3. They indicate that a consumer can afford a purchase.

4. They indicate that a consumer cannot afford a purchase.

They indicate that a consumer cannot afford a purchase.

In terms of economic models, how do the points inside the rate of transformation curve differ from those outside the curve?

1. The points outside the curve indicate that one has saved money.

2. The points inside the curve indicate that one has more than enough money for a purchase.

3. The points inside the curve indicate that one does not have enough money for a purchase.

4. The points inside the curve indicate that one has spent all of his/her money.

The points inside the curve indicate that one has more than enough money for a purchase.

Points on the rate of transformation curve indicate which of the following?

1. That one has saved money

2. That one does not have enough money for a purchase

3. That one has enough money for a purchase and then some

4. That one has spent all his/her money but not a penny more

That one has spent all his/her money but not a penny more

What does the rate of transformation measure?

1. The amount of one good you can get for a specific amount of money

2. The amount of two goods you can get for a specific amount of money

3. The volume at which two goods become cheaper to buy

4. The volume at which one good becomes cheaper to buy

The amount of two goods you can get for a specific amount of money

Indifference Curve

a model that compares the demand for a good with respect to demand for any other good

Complementary Good

they are used together

What do indifference curves measure?

1. The impact of the demand of good X on the demand for good Y.

2. The impact of the supply of good X on the demand of good Y.

3. The impact of the demand of good X on the supply of good Y.

4. The impact of the supply of good X on the supply of good Y.

The impact of the demand of good X on the demand for good Y.

Which of the following is a complementary good for a bicycle?

1. A motorcycle.

2. A car.

3. A pair of shoes.

4. A helmet.

A helmet.

How are indifference curves useful?

1. All of the answers are correct.

2. By helping firms identify real competitors who manufacture substitute goods.

3. By helping firms set prices.

4. By helping firms decide which companies to partner with that sell complement goods.

All of the answers are correct.

Which of the following is a substitute good for butter?

1. A water bottle

2. Margarine

3. Tea

4. A cupcake

Margarine

Are all goods necessarily related and subject to an indifference curve?

1. Yes, even tiny differences are worth noting.

2. No, only a very small number of goods are able to be modeled.

3. Yes, all goods are interconnected because they are all sold in the same marketplace.

4. No, it is unlikely that the choice of toilet brush influences the choice of car.

No, it is unlikely that the choice of toilet brush influences the choice of car.

Marginal Rate of Substitution

measure the rate at which people will substitute one good for another

The following items are always present in Julie's handbag: Prescription medicine, toilet paper, chewing gum, reading glasses, and a pen. Which item would you expect to have the highest marginal rate of substitution?

1. Prescription medicine

2. Reading glasses

3. Toilet paper

4. Pen

Pen

Cleo is always attentive to his clients' marginal rate of substitution. Which statement is most likely to be FALSE regarding Cleo's business?

1. Cleo may have higher profits.

2. Cleo's clients may be unsatisfied.

3. Cleo may have expensive stock.

4. Cleo may have lower costs.

Cleo's clients may be unsatisfied.

The following items are always present in Margaret's handbag: Prescription medicine, toothpicks, chewing gum, and a pen. Which item would you expect to have the lowest marginal rate of substitution?

1. Chewing gum

2. Prescription medicine

3. Toothpicks

4. Pen

Prescription medication

Which of these is NOT a likely effect of a producer only taking into consideration their own marginal rate of substitution and not that of their clients?

1. Decreased customer satisfaction.

2. Loss of business.

3. Lower profits.

4. Stock split.

Stock split.

How is the marginal rate of substitution best defined?

1. The rate at which a person will replace one good with another.

2. The rate at which a person will buy a substitute after their marginal needs have been met.

3. The rate at which a person will complement one good with another.

4. The rate at which a person will sell one good after their marginal needs have been met.

The rate at which a person will replace one good with another.

Complementary Goods

are used together

Substitute Goods

could be used instead of another good

Perfect Substitutes

price is the only difference between the two the line will be a perfectly straight line

Which of the following is a complement for a bathing suit? Why?

1. A beach towel, because you'd use the bathing suit and the beach towel together.

2. A pair of shorts, because you'd buy a bathing suit and a pair of shorts that came in the same size.

3. A pair of shorts, because you'd find the bathing suit and the pair of shorts in the same section of the store.

4. A beach towel, because you'd find the bathing suit and the beach towel in the same section of the store.

A beach towel, because you'd use the bathing suit and the beach towel together.

Which of the following is a substitute for national brand hamburgers?

1. Hamburger buns

2. Hot dogs

3. Local brand hamburgers

4. Mustard

Local brand hamburgers

Which of the following comes closest to being a perfect complement?

1. Cars and trucks

2. Pants and a hat

3. Hamburgers and hot dogs

4. A left shoe and a right shoe

A left shoe and a right shoe

What is the name of the model we use to find out more about complements and substitutes?

1. Indifference curve

2. Supply and demand graph

3. Circular flow

4. Production possibilities

Indifference curve