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

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Question 51

Multiple Choice

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

A) fungible; liquid
B) fungible; irrational
C) liquid; irrational
D) liquid; rational

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Question 52

Multiple Choice

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In economics,we assume a rational person will choose to do an activity:

A) if the opportunity costs outweigh the benefits of doing so.
B) if the sunk costs outweigh the benefits of doing so.
C) if the sunk and opportunity costs combined outweigh the benefits of doing so.
D) if the opportunity costs do not outweigh the benefits of doing so.

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Question 53

Multiple Choice

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

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 ________________.

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

Economists believe:

Rick finds a great Internet deal on an all-inclusive vacation rental in the Tropics for $1200,and immediately places a $1000 nonrefundable deposit on it.He later learns that the dates he planned to go are right in the middle of hurricane season,and it is likely to be miserable and potentially dangerous weather the entire time.Rick decides he cannot waste the $1000 and takes the trip anyway.While sitting in the rain,miserable,Rick realizes he should have:

Sadie just bought a new karaoke machine to replace her old one.Her old one works perfectly fine and would sell on Craigslist for $50.The fact that Sadie would not pay $50 for it,yet continues to let it sit in her closet unused is explained by:

The idea of time inconsistency explains procrastination by:

A commitment device is:

Behavioral economics:

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

Beth really wants to get in shape,but just can't seem to ever get herself to the gym.An example of a commitment device Beth could use would be:

Not buying junk food while doing the weekly shopping and forcing an extra trip to the store to acquire it is an example of:

Howie just bought a new digital camera to replace his old one.His old one works perfectly fine and would sell on Craigslist for $100.The fact that Howie would not pay $100 for it,yet continues to let it sit in his closet unused is explained by:

John has $4000 in savings to buy an engagement ring for his girlfriend even though he has no plans to propose in the near future.When his transmission needs to be replaced in his car,John charges the $2000 worth of auto repair.John's decision is an example of:

Steve is finding it impossible to get over his most recent break-up and finds himself talking about her constantly.An example of a commitment device that Steve could use to get over her would be:

When people refuse to pay down debt with their savings:

The implicit cost of ownership:

An example of a commitment device for Jane,who says she really wants to save more would be: