Question

Jacques spends a significant amount of time researching resorts for a long overdue vacation, paying special attention to resorts' chefs and food options. Which of the following best explains Jacques's behavior from an economic perspective?

A)Jacques behaves irrationally, refusing to make a decision with imperfect information.

B)Because this vacation is important to Jacques, as a rational consumer, he wants to make a well-informed choice.

C)Jacques's behavior is irrational because spending too much time researching the best option increases the cost of finding the best option.

Jacques has always been fond of lobster. However, after having lobster every day for a week while on

vacation, he grew tired of his favorite meal. How can economic theory help explain this change of heart?

A)Because lobster is very expensive, Jacques feels guilty about spending so much money on this item.

B)Because of his limited income, Jacques realizes that he will be happier if he substitutes fish burgers for lobster.

C)As Jacques consumes more and more of his favorite meal, the marginal utility of additional servings of lobster declines.

D)Jacques realizes that lobsters are an endangered species and decides that he should stop eating them.

Sam has a so-called fruit budget, which he uses to buy only apples and nectarines. Assume the price of apples increases. Which of the following is an example of the income effect?

A)The increase in the price of apples decreases Sam's real income, which forces Sam to buy fewer fruits in general.

B)Because the price of apples increases, Sam will choose to buy only nectarines and no apples.

C)The increase in the price of apples makes apples relatively more expensive than nectarines, so Sam will buy fewer apples and more nectarines.

Answer 1