HBX Core Economics For Managers
Concepts And Definitions Exam With
100% Correct And Verified Answers
WTP - Correct Answer-Willingness To Pay
The maximum price you are willing to pay for a product or
service.
Irrationality - Correct Answer-Paying more than WTP
Actual Value - Correct Answer-= WTP
Intrinsic vs. Extrinsic Differences - Correct Answer-
Differences in consumer WTP that arise from differences in,
say, age, gender, income, or education are what we call
"extrinsic" or "observable" differences.
Other differences are "intrinsic"—things that you couldn't
know about a person without asking him or her. They're
hard to observe (and for that reason are also referred to as
"unobserved differences"). For example, a person's
tolerance for risk, his or her wish to fit in with others or
stand out from others, etc.
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,Does a sale affect WTP? - Correct Answer-No
What does each axis of the demand curve show? - Correct
Answer-Cumulative quantity on x-axis
Price on y-axis
How is revenue represented on a demand curve? - Correct
Answer-The rectangle under the demand curve.
Price × Number of Consumers
How does demand curve shift based on WTP? - Correct
Answer-Increased WTP = rightward shift
Decreased WTP = leftward shift
Price does *not* affect WTP or shift demand curve.
Diminishing Marginal Returns - Correct Answer-If buying
more than one of a specific item, generally, people are
willing to pay less for the second item, even less for the third,
etc.
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, For example, this is why buying in bulk is
often cheaper than buying individual
products -- companies price bulk items
cheaper because of this concept.
Determining steep vs. flat curve - Correct
Answer-(1) Close substitutes (flatter)
(2) Necessity (steeper) vs. luxury (flatter)
(3) Time horizon (closer = steeper, farther =
flatter)
Slope of demand curve (elasticity) - Correct
Answer-In general:
Steep curve = inelastic = demand not
sensitive to price changes = less substitutes
available
"If you raise the price, I don't have very many
other options, so I will still pay what you
charge me."
Flat curve = elastic = demand is sensitive to
price changes = more substitutes available
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