Katie wanted to buy a new car. However, she could not decide on a model that suited her needs and was affordable at the same time
She finally decided to buy a Porsche when she learned that two of her colleagues had bought them, although its price exceeded the money she had saved for her car. Explain her behavior.
Peer effect has influenced Katie's behavior in this case. Economists call the influence of the decisions of others on our choices peer effects. Our social surroundings importantly affect the decisions that we make daily. Our friends and acquaintances are a major force in shaping both our preferences and the choices we make in life. In social behavior, people tend to gather information from those around them and use this information to decide on their own behavior. Both the characteristics of our peers–their talents and skills–and their choices affect our lives. One possible reason why Katie behaves in this manner is that she has learned from her peers that buying a Porsche is a good choice. Another possibility is that the buying decisions of her peers created social pressure.
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Supply curves are usually assumed to slope upward because
a. profits fall as prices rise b. a higher price leads to increases in demand c. a higher price leads to decreases in demand d. a higher price attracts resources from other less valued uses e. firms drop out of the market as prices rise
Which of the following describes how a negative externality affects a competitive market?
A) The externality causes a difference between the private cost of production and the social cost. B) The externality causes a difference between the private cost of production and the private benefit from consumption. C) The externality causes consumer surplus to exceed producer surplus. D) The externality causes a difference between the private cost of production and the equilibrium price.