Question 1

When shopping for a ticket to see One Direction,her favorite band,in concert,Annie mistakenly purchased a 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:

Accepted Answer

A)  rationally and skips the play and spends another $100 on the concert ticket.
B)  rationally and sits through the play she has the ticket for,which is as awful as she thought it might be.
C)  irrationally and skips the play and spends another $100 on the concert ticket.
D)  None of these is a possible outcome.E) None of the above
F) All of the above

Question 2

People consistently consider sunk costs when weighing the trade-offs involved in a decision because:

Accepted Answer

A)  they are rational.
B)  they find it hard to accept their losses.
C)  they are utility-maximizers.
D)  they think at the margin.E) B) and D)
F) A) and C)

Question 3

Why is a sunk cost not part of the opportunity cost of a decision?

Accepted Answer

A)  Because the money is gone,regardless of your current decision.
B)  Because the expense would too often outweigh the benefits.
C)  Because the chances of you recouping it are infinitesimally small.
D)  Sunk costs are a part of the opportunity cost of a decision.E) All of the above
F) B) and C)

Question 4

Putting money into mental categories can:

Accepted Answer

A)  cause people to take risks they wouldn't otherwise take.
B)  help people organize their expenditures.
C)  cause irrational behavior.
D)  All of these are true.E) A) and D)
F) A) and C)

Question 5

In economics,we often observe that people consistently act irrationally in some situations and will choose to do something even if:

Accepted Answer

A)  the benefits outweigh the opportunity costs.
B)  the opportunity costs outweigh the benefits.
C)  the benefits outweigh the sunk costs.
D)  the sunk costs outweigh the opportunity costs.E) All of the above
F) None of the above

Question 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?

Accepted Answer

A)  rational behavior
B)  irrational behavior
C)  chronologically challenged behavior
D)  time allocationE) A) and C)
F) None of the above

Question 7

An example of a commitment device would be:

Accepted Answer

A)  putting your exercise bike in the middle of the living room in front of the TV.
B)  putting a lock on the cookie jar.
C)  a swear jar that you and your friends agree must be paid $5 each time someone swears.
D)  All of these are examples of commitment devices.E) B) and C)
F) C) and D)

Question 8

Marissa walks into a convenience store to buy something to drink.As she stares into the cooler,the opportunity cost of choosing a Gatorade is:

Accepted Answer

A)  obvious.It's the value she places on whatever drink she would choose if she didn't pick Gatorade.
B)  distant and abstract.It's the value she places on whatever drink she would choose if she didn't pick Gatorade.
C)  obvious.It's the value she places on all the other drinks she could choose instead of Gatorade.
D)  distant and abstract.It's the value she places on all the other drinks she could choose instead of Gatorade.E) B) and D)
F) B) and C)

Question 9

An example of a fungible commodity is:

Accepted Answer

A)  oil.
B)  gold.
C)  aluminum.
D)  All of these are fungible commodities.E) B) and C)
F) A) and B)

Question 10

Behavioral economists have found that people ______________,and this leads to irrational decisions.

Accepted Answer

A)  often forget money is fungible
B)  often undervalue opportunity costs
C)  often forget to ignore sunk costs
D)  All of these statements are correct.E) A) and B)
F) A) and C)

Question 11

A commitment device is:

Accepted Answer

A)  an arrangement entered into by an individual with the aim of helping fulfill a plan for future behavior that would otherwise be difficult.
B)  a way to deal with time inconsistency.
C)  something that helps people conquer their vices.
D)  All of these are true.E) A) and B)
F) B) and D)

Question 12

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:

Accepted Answer

A)  a commitment device.
B)  price-optimization theory.
C)  the law of supply.
D)  a way to deal with inconsistent costs.E) C) and D)
F) B) and D)

Question 13

Sunk costs are:

Accepted Answer

A)  costs that have been incurred and cannot be recovered.
B)  explicit costs that will incur large implicit costs to recoup or recover.
C)  costs that are upfront on a project and should be pulled out if the business fails to thrive.
D)  None of these is correct.E) A) and B)
F) A) and C)

Question 14

Grace just got her first cell phone,an iPhone,for graduation.She tosses her iTouch in a drawer and never touches it again,even though she could easily sell it for $75 on Craigslist.Grace's choice is ___________ because ________________.

Accepted Answer

A)  rational;she weighs the $200 she paid for the iTouch and the $75 she could sell it for now
B)  irrational;she weighs the $200 she paid for the iTouch and the $75 she could sell it for now
C)  rational;she would not pay $75 to buy the iTouch today
D)  irrational;she would not pay $75 to buy the iTouch todayE) A) and B)
F) A) and C)

Question 15

Jim bought a new bike and rides it every day,while his old one sits in the garage untouched.The opportunity cost of the old bike to Jim is:

Accepted Answer

A)  nothing,since he doesn't really value it anymore.
B)  whatever he could sell it for.
C)  the value of the space it takes up in his garage.
D)  All of these are true.E) A) and B)
F) C) and D)

Question 16

A consumer is likely to ______________ his benefit of making a choice when it is right in front of him and his opportunity cost is not.

Accepted Answer

A)  undervalue
B)  overvalue
C)  accurately value
D)  None of these is true.E) C) and D)
F) None of the above

Question 17

When people forget that money is ____________ they often make ______________ decisions.

Accepted Answer

A)  fungible;irrational
B)  fungible;liquid
C)  liquid;irrational
D)  liquid;rationalE) A) and C)
F) B) and C)

Question 18

Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his Iphone 4 in a drawer and forgets about it.Economists would say this behavior is ___________ and would use the concept of ________________ to explain this choice.

Accepted Answer

A)  irrational;the implicit cost of ownership
B)  rational;the implicit cost of ownership
C)  irrational;ignoring sunk costs
D)  rational;considering sunk costsE) All of the above
F) None of the above

Question 19

The implicit cost of ownership:

Accepted Answer

A)  is a cognitive bias.
B)  leads people to value things more once they possess them.
C)  is a nonmonetary opportunity cost that is often overlooked.
D)  All of these are true.E) A) and B)
F) A) and C)

Question 20

Which of the following is not an example of a fungible commodity?

Accepted Answer

A)  Wheat
B)  Electricity
C)  Money
D)  All of these are fungible commodities.E) All of the above
F) A) and C)

Exam 8: Behavioral Economics: A Closer Look at Decision Making

Marissa walks into a convenience store to buy something to drink.As she stares into the cooler,the opportunity cost of choosing a Gatorade is:

Correct AnswerverifiedShow Answer

An example of a commitment device would be:

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When shopping for a ticket to see One Direction,her favorite band,in concert,Annie mistakenly purchased a 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:

Correct AnswerverifiedShow Answer

The implicit cost of ownership:

Correct AnswerverifiedShow Answer

An example of a fungible commodity is:

Correct AnswerverifiedShow Answer

Putting money into mental categories can:

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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:

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Behavioral economists have found that people ______________,and this leads to irrational decisions.

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A consumer is likely to ______________ his benefit of making a choice when it is right in front of him and his opportunity cost is not.

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Jim bought a new bike and rides it every day,while his old one sits in the garage untouched.The opportunity cost of the old bike to Jim is:

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Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his Iphone 4 in a drawer and forgets about it.Economists would say this behavior is ___________ and would use the concept of ________________ to explain this choice.

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Sunk costs are:

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In economics,we often observe that people consistently act irrationally in some situations and will choose to do something even if:

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Why is a sunk cost not part of the opportunity cost of a decision?

Correct AnswerverifiedShow Answer

When people forget that money is ____________ they often make ______________ decisions.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A commitment device is:

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Grace just got her first cell phone,an iPhone,for graduation.She tosses her iTouch in a drawer and never touches it again,even though she could easily sell it for $75 on Craigslist.Grace's choice is ___________ because ________________.

Correct AnswerverifiedShow Answer

People consistently consider sunk costs when weighing the trade-offs involved in a decision because:

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Which of the following is not an example of a fungible commodity?

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Keith just got an iPhone 5 for his birthday,and he quickly switches his data over and throws his Iphone 4 in a drawer and forgets about it.Economists would say this behavior is _ and would use the concept of ______ to explain this choice.

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When people forget that money is they often make __ decisions.

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Grace just got her first cell phone,an iPhone,for graduation.She tosses her iTouch in a drawer and never touches it again,even though she could easily sell it for $75 on Craigslist.Grace's choice is _ because ______.

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