Close window
Federal Reserve Bank of Boston Economic Quiz
Consumer Theory: Habit Formation
In recent years, an increasing number of scholars (including Nobel Prize laureate Daniel Kahneman) have focused on the importance of habits in economic decision-making. This quiz tests and explains a few facts and terms from the theory of habit formation.
1. External habit formation occurs when:
A person's past consumption pattern influences his current consumption
A person's past consumption pattern influences other people's present consumption
Other people's present consumption influences one's present consumption
Other people's past consumption influences one's past consumption.
2. Internal habit formation occurs when:
A person's past consumption pattern influences his current consumption
A person's past consumption pattern influences other people's present consumption
Other people's present consumption influences one's present consumption
Other people's past consumption influences one's past consumption.
3. Which of the following books is generally thought of as the first precursor of modern habit formation theory?
Choosing the Right Pond by Robert Frank
Tom Sawyer by Mark Twain
The Theory of the Leisure Class by Thorstein Veblen
Globalization and Its Discontents by Joseph Stiglitz
4. In which of the following works was the 'relative income hypothesis', formulating a set of social effects on individual spending, first advanced?
To Have or to Be by Erich Fromm
Income, Saving, and the Theory of Consumer Behavior by James Duesenberry
Luxury Fever by Robert Frank
The Overworked American by Juliet Schor
5. Following the work of Kahneman and Tversky and assuming that an economic agent is loss-averse (i.e. evaluates losing a unit of a good as more important than gaining a unit of the same good), what is true of the indifference curves of his utility function?
They are convex and smooth.
They are concave and piecewise smooth.
They are convex and discontinuous.
They are convex and piecewise smooth.
Created with QuizScript
Close window
Economic quiz written by: Radoslav Raykov - July 2003
Views expressed in the economic quiz are those of the individual author.