Question : 11) Sunk costs A) costs associated with repairing something you already : 1245195

11) Sunk costs

A) are costs associated with repairing something you already own.

B) are important for optimal decision making.

C) are costs that have already been paid and cannot be recaptured in any significant way.

D) are costs that firms sink into marketing.

12) Which of the following is a common mistake consumers commit when they make decisions?

A) They take into account nonmonetary opportunity costs but ignore monetary costs.

B) They are overly pessimistic about their future behavior.

C) They fail to ignore sunk costs.

D) They sometimes value fairness too much.

13) Which of the following is not a common mistake made by consumers?

A) the failure to take into account the implicit costs of an activity

B) the failure to ignore sunk costs

C) being overly optimistic about their future behavior

D) being overly pessimistic about their future behavior

14) Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair. When asked by her boss, Mme. Ramotswe why does she not simply give away the new pair, she said: “But I paid so much for them.”Grace’s behavior

A) is rational: she should not discard a valuable item.

B) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not.

C) supports the endowment effect which states that ownership of an item makes it more valuable.

D) is rational because the more you pay for an item the more valuable it is.

15) Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions. Which of the following could explain this observation?

A) People measure the value of a good in terms of its purchase price.

B) Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product’s value.

C) If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.

D) Sunk costs have a higher opportunity cost than costs that can be recovered.

16) Arnold Kim began blogging about Apple products during his fourth year of medical school. Kim’s website, MacRumors.com, became so successful that he decided to give up his medical career and work full time on his website, despite the nearly $200,000 he had invested in his education. In making his decision, Kim decided to ignore the money and time he spent on his education. Economists would say that Kim made a

A) rational decision to ignore these sunk costs.

B) poor decision since he had already invested his time and money on his medical career.

C) poor decision since doctors are in greater demand than bloggers.

D) hasty decision by not waiting to recoup his financial investment before giving up his medical career.

17) A study discussed in the Making the Connection feature in the text found that there is ________ that some consumers are not well aware of prices, even for goods they buy regularly.

A) no evidence

B) substantial evidence

C) little evidence

D) no reason to believe

18) Behavioral economics helps explain why customers ________ at J.C. Penney.

A) favored the policy of everyday low prices and not sales and coupons

B) favored sales and coupons and not the policy of everyday low prices

C) were equally happy with sales and coupons and the policy of everyday low prices

D) responded negatively to both sales and coupons and the policy of everyday low prices

19) A new area of economics studies situations in which people appear to be making choices that do not appear to be economically rational. This area is called

A) behavioral economics.

B) irrational economics.

C) social economics.

D) new wave economics.

20) Behavioral economics refers to the study of situations

A) where consumers and firms appear to make choices that are appropriate to reach their goals.

B) where consumers and firms appear to value fairness when they make choices.

C) where consumers and firms disobey the laws of demand and supply.

D) where consumers and firms do not appear to be making choices that are economically rational.