Question 1

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

Accepted Answer

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

Question 2

One concept that behavioral economists use to account for procrastination is:

Accepted Answer

A)   the time inconsistency of our decision-making.
B)   the fungibility of money.
C)   thinking inconsistently about prices.
D)   framing bias.E) A) and B)
F) All of the above

Question 3

When shopping for a ticket to see One Direction,her favorite band,in concert,Annie mistakenly purchased a non-refundable 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) B) and C)
F) A) and D)

Question 4

People will consistently sit through terrible movies at the theater instead of leaving early.This behavior makes no sense because it implies people are:

Accepted Answer

A)   ignoring sunk costs, which is irrational.
B)   focusing on sunk costs, instead of thinking at the margin.
C)   thinking at the margin, instead of focusing on sunk costs.
D)   not thinking at the margin, which is rational.E) A) and C)
F) None of the above

Question 5

Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating.An example of a commitment device Evan could use would be:

Accepted Answer

A)   to allow himself one hour of leisure for every half-hour of studying he does each day.
B)   to exercise before studying in order to be refreshed.
C)   to pay a student to meet him each afternoon for 2 hours in the library to ensure he studies every day.
D)   All of these are commitment devices.E) A) and C)
F) C) and D)

Question 6

Time inconsistency refers to a situation where:

Accepted Answer

A)   we change our minds about what we want in response to gaining complete information.
B)   we change our minds about what we want simply because of the timing of the decision.
C)   we typically choose the same thing, regardless of when the decision is being made.
D)   None of these statements is true.E) A) and C)
F) B) and C)

Question 7

In economics,we observe that people consistently make irrational decisions in certain situations and 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) A) and B)
F) A) and C)

Question 8

Undervaluing of opportunity cost sometimes occurs because:

Accepted Answer

A)   the opportunity cost is easy to visualize.
B)   the benefit is difficult to visualize.
C)   the opportunity cost is hard to visualize.
D)   opportunity cost is just theoretical.E) None of the above
F) A) and D)

Question 9

Luke won tickets to see a rock music concert.Even though Luke is a rhythm and blues fan,he goes to the concert anyway.Twenty minutes later,Luke decides he hates the music and the screaming fans,and he walks out an hour before the concert is scheduled to end.Luke's behavior demonstrates what economic concept?

Accepted Answer

A)   Irrational behavior
B)   Rational behavior
C)   The fungibility of money
D)   None of these explain Luke's behavior.E) All of the above
F) A) and B)

Question 10

Patti buys a new kind of cereal to try even though it's more expensive than her favorite kind.After a single bowl,Patti decides she does not care for the new cereal at all,and she:

Accepted Answer

A)   forces herself to finish it, because she irrationally focuses on the sunk cost of the cereal.
B)   throws it away, because she irrationally spent money on something she had no information about.
C)   forces herself to finish it, because she rationally computes the cost per bowl.
D)   None of these is likely to happen for the reason stated.E) All of the above
F) C) and D)

Question 11

Walter rents some ice time at the local hockey rink for 2 hours.After skating for an hour,he finds himself cold,tired,and hungry.If Walter decides to skate around for the other hour before leaving,it is likely because he:

Accepted Answer

A)   is ignoring the sunk cost of the rink time.
B)   is focusing on the sunk cost of the rink time.
C)   is weighing his opportunity costs of the second hour against the benefits of the second hour of skating.
D)   None of these is true.E) B) and C)
F) None of the above

Question 12

Harry's employer offers a "Holiday Account," which means they will take $50 a month out of Harry's paycheck and deposit it into this account throughout the year.In December,they give Harry the money in the account to spend during the holidays.Setting up such accounts:

Accepted Answer

A)   ignores the fungibility of money.
B)   is irrational.
C)   creates a false distinction of money for employees like Harry.
D)   All of these are true.E) B) and D)
F) A) and B)

Question 13

Deciding not to buy any junk food at the grocery store while shopping for the week is:

Accepted Answer

A)   an example of removing temptation in an effort to match present-oriented decisions more closely to future-oriented ones.
B)   an example of how individuals may compensate for the time inconsistency of their actions.
C)   an example of a tool people can use in order to enact the actions they say they want to make, but have a hard time making.
D)   All of these are true.E) All of the above
F) B) and C)

Question 14

Buddy has $2000 in a checking account and wants to buy a new MacBook for $1100.Buddy decides he needs the money in his account to pay his bills next month and so puts the $1100 on his credit card and pays it off gradually over the next several months.Buddy choosing to "save" his cash on hand for everyday expenses is:

Accepted Answer

A)   irrational, since money is fungible.
B)   rational, since Buddy can now pay all his bills with a small credit card payment each month.
C)   going to make Buddy wealthier in the long run.
D)   rational, since he has his new computer and has money in the bank.E) All of the above
F) A) and B)

Question 15

An example of a commitment device would be:

Accepted Answer

A)   buying yourself an ice cream after going to the gym.
B)   putting a note on the cookie jar that you want to lose weight.
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) A) and D)
F) None of the above

Question 16

Money is:

Accepted Answer

A)   fungible, meaning it is easily exchangeable or substitutable.
B)   not fungible, meaning it can be easily exchanged or substituted.
C)   an alternative to implicit costs.
D)   a proven cognitive bias.E) None of the above
F) All of the above

Question 17

Which of the following is an example of a fungible commodity?

Accepted Answer

A)   Picasso paintings
B)   Houses
C)   Live concerts
D)   None of these is a fungible commodity.E) None of the above
F) B) and C)

Question 18

Kyle receives two free passes to the symphony as a bonus at work.He has never been to the symphony before and would probably not buy such tickets for their face value of $120.Kyle decides to use the tickets rather than sell them at face value.This type of behavior is:

Accepted Answer

A)   irrational, since Kyle would not pay $120 for the tickets, yet gives up $120 by not selling them.
B)   rational, since Kyle can check out the symphony and not have to pay for it himself.
C)   irrational, since Kyle ignores his sunk cost of $120.
D)   rational, since Kyle does not ignore his sunk cost of $120.E) None of the above
F) C) and D)

Question 19

Marissa walks into a convenience store to buy something to drink.As she stares into the cooler,her 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 C)
F) A) and C)

Question 20

An example of a sunk cost would be:

Accepted Answer

A)   the cost of a movie ticket once you've started watching the movie.
B)   the value of a lift ticket once you've started skiing.
C)   the admission fee you paid to enter a national park.
D)   All of these are examples of sunk costs.E) None of the above
F) A) and D)

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

In economics,we observe that people consistently make irrational decisions in certain situations and choose to do something even if:

Correct Answer
verified

Which of the following is an example of a fungible commodity?

Correct Answer
verified

People will consistently sit through terrible movies at the theater instead of leaving early.This behavior makes no sense because it implies people are:

Correct Answer
verified

Harry's employer offers a "Holiday Account," which means they will take $50 a month out of Harry's paycheck and deposit it into this account throughout the year.In December,they give Harry the money in the account to spend during the holidays.Setting up such accounts:

Correct Answer
verified

Walter rents some ice time at the local hockey rink for 2 hours.After skating for an hour,he finds himself cold,tired,and hungry.If Walter decides to skate around for the other hour before leaving,it is likely because he:

Correct Answer
verified

Undervaluing of opportunity cost sometimes occurs because:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

An example of a sunk cost would be:

Correct Answer
verified

When shopping for a ticket to see One Direction,her favorite band,in concert,Annie mistakenly purchased a non-refundable 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 Answer
verified

Kyle receives two free passes to the symphony as a bonus at work.He has never been to the symphony before and would probably not buy such tickets for their face value of $120.Kyle decides to use the tickets rather than sell them at face value.This type of behavior is:

Correct Answer
verified

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

Correct Answer
verified

An example of a commitment device would be:

Correct Answer
verified

Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating.An example of a commitment device Evan could use would be:

Correct Answer
verified

Time inconsistency refers to a situation where:

Correct Answer
verified

One concept that behavioral economists use to account for procrastination is:

Correct Answer
verified

Patti buys a new kind of cereal to try even though it's more expensive than her favorite kind.After a single bowl,Patti decides she does not care for the new cereal at all,and she:

Correct Answer
verified

Deciding not to buy any junk food at the grocery store while shopping for the week is:

Correct Answer
verified

Money is:

Correct Answer
verified

Correct Answer
verified

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

In economics,we observe that people consistently make irrational decisions in certain situations and choose to do something even if:

Correct AnswerverifiedShow Answer

Which of the following is an example of a fungible commodity?

Correct AnswerverifiedShow Answer

People will consistently sit through terrible movies at the theater instead of leaving early.This behavior makes no sense because it implies people are:

Correct AnswerverifiedShow Answer

Harry's employer offers a "Holiday Account," which means they will take $50 a month out of Harry's paycheck and deposit it into this account throughout the year.In December,they give Harry the money in the account to spend during the holidays.Setting up such accounts:

Correct AnswerverifiedShow Answer

Walter rents some ice time at the local hockey rink for 2 hours.After skating for an hour,he finds himself cold,tired,and hungry.If Walter decides to skate around for the other hour before leaving,it is likely because he:

Correct AnswerverifiedShow Answer

Undervaluing of opportunity cost sometimes occurs because:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of a sunk cost would be:

Correct AnswerverifiedShow Answer

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

Kyle receives two free passes to the symphony as a bonus at work.He has never been to the symphony before and would probably not buy such tickets for their face value of $120.Kyle decides to use the tickets rather than sell them at face value.This type of behavior is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of a commitment device would be:

Correct AnswerverifiedShow Answer

Evan knows his GPA would skyrocket if he could break his horrible habit of procrastinating.An example of a commitment device Evan could use would be:

Correct AnswerverifiedShow Answer

Time inconsistency refers to a situation where:

Correct AnswerverifiedShow Answer

One concept that behavioral economists use to account for procrastination is:

Correct AnswerverifiedShow Answer

Patti buys a new kind of cereal to try even though it's more expensive than her favorite kind.After a single bowl,Patti decides she does not care for the new cereal at all,and she:

Correct AnswerverifiedShow Answer

Deciding not to buy any junk food at the grocery store while shopping for the week is:

Correct AnswerverifiedShow Answer

Money is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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