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Chapter 08 Test Bank KEY
1. Economists make the general assumption that:
2. A typical behavior that violates the assumption of rational behavior is:
3. Someone saying that he wants to lose weight, but ordering dessert is an example of:
4. Sitting through a terrible movie till the end because you already bought the ticket is an example of:
5. Joe walks into Best Buy prepared to spend no more than $500 cash on a new computer, but the price
turns out to be $600. Joe is told if he finances it on a Best Buy credit card, it will cost $600, but he will get
a $25 gift card free with the computer. Joe opts to open the credit card and puts the full $600 on the
account. According to economic theory, Joe’s decision is:
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6. Stan complains to his roommate that he never has enough time to finish all the homework he’s
assigned, and his roommate tells him to quiet down because the first of the three movies they’ve planned
to watch that day has begun. Stan’s behavior demonstrates which economic concept?
7. Mark has $2000 saved for a trip at Spring Break. Over Winter Break, he decide to buy gifts for his
family and puts over $500 on his credit card which charges 10% interest on the outstanding balance
every month. He pays off the credit card bill gradually over the next two months. An economist would
categorize that behavior as:
8. Matt has $2000 saved for a trip at Spring Break. Over Christmas break he decides to spend $400 of it
on gifts instead of putting the gifts on his credit card, thus avoiding interest charges. He gradually
replaces it in his savings account over the next two months. An economist would say this behavior is:
9. Luke won tickets to see a rock music concert. Even though Luke is a rhythm and blues fan, he goes to
the concert anyway. Twenty minutes later, Luke decides he hates the music and the screaming fans, and
he walks out an hour before the concert is scheduled to end. Luke’s behavior demonstrates what
economic concept?
10. Scott and Tom have dinner together at a new restaurant, and they discover that the portions are huge
but taking home leftovers is not allowed. When both decide they are full, Scott forces himself to finish the
rest of the food on his plate even though he doesn’t really want to, while Tom asks the waiter to remove
his plate while it still contains some food. How would an economist describe this behavior?
11. In order to get children to eat all the food they’ve served, regardless of their hunger, mothers have
relied for decades on the argument that “there are starving children in Africa.” Assuming the presence of
hungry children on another continent does not affect the utility you derive from the food on your plate, if
you choose to force down food based on this argument, you are:
12. Behavioral economics:
13. The field of economics that draws on insights from psychology to expand models of individual
decision making is called:
14. An application of behavioral economics is:
15. An application of behavioral economics is:
16. Behavioral economists recommend mechanisms that help people:
17. Behavioral economists recommend mechanisms to help people actually do things they say they want
to do but often don’t. Such mechanisms are often called
18. One concept that behavioral economists use to account for procrastination is:
19. Time inconsistency refers to a situation where:
20. When people change their minds about what they want simply because of the timing of the decision,
economists refer to it as:
21. The idea of time inconsistency explains procrastination by:
22. The idea of time inconsistency:
23. Applying the idea of time inconsistency, we can say that, in general, a person’s “future-oriented self”:
24. Deciding not to buy any junk food at the grocery store while shopping for the week is:
25. Jake brings his Xbox home over winter break and leaves it there, thinking he will study more in the
spring without it around. Jake is:
26. Not buying junk food while doing the weekly shopping and forcing an extra trip to the store to acquire
it is an example of:
27. Installing software to limit screen time, forcing you to uninstall it every time you reach the limit, is an
example of:
28. A commitment device is:
29. In an effort to lose weight, Sam posts flyers all over town that offer a reward of $50 to anyone who
catches him eating unhealthy food. Sam’s flyers are an example of:
30. Brett desperately wants to quit smoking, but just can’t seem to do it on his own. So, he tells his friends
that he will pay them $20 each time they catch him smoking. This agreement with Brett‘s friends is an
example of:
31. An example of a commitment device would be:
32. An example of a commitment device for Jane, who says she really wants to save more would be:
33. Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating. An
example of a commitment device Evan could use would be:
34. Beth really wants to get in shape, but just can’t seem to ever get herself to the gym. An example of a
commitment device Beth could use would be:
35. Steve is finding it impossible to get over his most recent break-up and finds himself talking about her
constantly. An example of a commitment device that Steve could use to get over her would be:
36. Behavioral economics uses concepts and theories to explain the systematic patterns in how we
behave that lead to consistently erroneous decisions. These patterns are called:
37. Sunk costs are:
38. An example of a sunk cost would be:
39. An example of a sunk cost would be:
40. Rick finds a great Internet deal on an all-inclusive vacation rental in the Tropics for $1200, and
immediately places a $1000 nonrefundable deposit on it. He later learns that the dates he planned to go
are right in the middle of hurricane season, and it is likely to be miserable and potentially dangerous
weather the entire time. Rick decides he cannot waste the $1000 and takes the trip anyway. While sitting
in the rain, miserable, Rick realizes he should have:
41. Rick finds a great Internet deal on an all-inclusive vacation rental in the Tropics for $1200, and
immediately places a $1000 nonrefundable deposit on it. He later learns that the dates he planned to go
are right in the middle of hurricane season, and it is likely to be miserable and potentially dangerous
weather the entire time. Rick decides he cannot waste the $1000 and takes the trip anyway. While sitting
in the rain, miserable, Rick realizes:
42. In economics, we assume rational decisions are made when individuals weigh:
43. In economics, we assume a rational person will choose to do an activity:
44. In economics, we observe that people consistently make irrational decisions in certain situations and
choose to do something even if:
45. People consistently consider sunk costs when weighing the trade-offs involved in a decision
because:
46. People will consistently sit through terrible movies at the theater instead of leaving early. This
behavior makes no sense because it implies people are:
47. An example of someone who irrationally considers sunk costs when making a decision is most likely:
48. Patti buys a new kind of cereal to try even though it’s more expensive than her favorite kind. After a
single bowl, Patti decides she does not care for the new cereal at all, and she:
49. When shopping for a ticket to see One Direction, her favorite band, in concert, Annie mistakenly
purchased a non-refundable ticket to the off-off-off Broadway play “One Dissection,” which she has no
interest in seeing. Because the ticket cost her $100, Annie decides to think about it:
50. After enjoying a perfectly delicious meal, Duane treats himself and orders a very expensive dessert.
After one bite, Duane realizes he does not care for it at all. He chokes it down while thinking about the
money he just wasted on it. Duane’s decision to eat the entire dessert is an example of:
51. Bill attends a local basketball game. The teams are very unbalanced, the play is bad, and the score
quickly reaches 36-2. At halftime, Bill realizes he’s having no fun, leaves the game, and goes home. Bill’s
behavior is NOT determined by
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52. Walter rents some ice time at the local hockey rink for 2 hours. After skating for an hour, he finds
himself cold, tired, and hungry. If Walter decides to skate around for the other hour before leaving, it is
likely because he:
53. Sandy is a big Star Wars fan and buys a $20 ticket a week in advance to the premier of the new
movie. After arriving at the theater, she realizes she left the ticket at home and doesn’t have time to return
home and get it. Sandy can buy another ticket for $20. She decides not to because seeing the movie isn’t
worth $40 to her. This is an example of:
54. Jason spends all afternoon baking a cake. When it comes out of the oven, it’s burnt and sunk in the
middle. Jason thinks about all the time he invested in making it and decides he’ll spend more time frosting
it and eat it anyway, even though it tastes pretty terrible. Jason’s decision to continue to decorate and eat
the cake is a good example of:
55. Beverly spends $100 on a teeth whitening kit. After one application, her gums are inflamed and it
feels like her mouth is on fire. Beverly is trying to decide whether to apply the treatment again, or throw
the kit away. The opportunity cost of a second application is: