Question 1

Under J.C.Penney's everyday low pricing policy, the everyday low prices

Accepted Answer

According to the article, under J.C. Penney's everyday low pricing policy, the prices ended up being higher than the sale prices under the previous pricing policy.

Question 2

Harvey Miller owns a baseball that was hit for a home run by Ted Williams.Harvey, a long-time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it.Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero.This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior?

Accepted Answer

Harvey's behavior can be explained by the endowment effect, which is the tendency for people to value things they already possess more than they would if they did not own them. This is why Harvey would not sell the baseball for $75,000, even though he would not have paid someone more than $10,000 for it before he owned it. Harvey's emotional attachment to the baseball, and the fact that it was hit by his hero, Ted Williams, make it even more valuable to him.

Question 3

Assume that you had a ticket for a basketball playoff game that you bought for $50, the maximum price you were willing to pay.If a friend of yours offers to buy the ticket for $100 but you decide not to sell it, how can your decision be explained?

Accepted Answer

The endowment effect explains why people value an item more once they own it, leading you to keep the ticket despite the higher offer.

Question 4

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, the $200,000 he spent on his education

Accepted Answer

The sunk cost of $200,000 should be ignored because it has already been spent and cannot be recovered. It should not affect Kim's decision to pursue a new career path based on the success of his website.

Question 5

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets, and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are an example of

Accepted Answer

The survey results indicate that fans were unwilling to sell their Super Bowl tickets for $3,000, even though they would not have paid that much for the tickets originally. This is an example of the endowment effect, where people place a higher value on things they already own compared to the value they would place on the same item if they did not own it. This phenomenon can lead to market inefficiencies and higher prices for goods.

Question 6

Health clubs typically experience an increase in one-year memberships in January, but many new customers cancel their memberships before the end of the year.Which of the following is the best explanation for this behavior?

Accepted Answer

Many people make New Year's resolutions to live a healthier lifestyle and join a health club as a way to fulfill this resolution. However, they may overestimate their motivation and commitment to working out regularly, leading them to cancel their memberships before the year is over. This behavior is linked to the cognitive bias of optimism bias, where individuals believe they will behave better in the future than they have in the past or present.

Question 7

What is the endowment effect?

Accepted Answer

The endowment effect is the tendency of people to place a greater value on something they own than the value they would place on the same object if they did not own it. This often leads to people being unwilling to sell an object even when they are offered a fair price for it. The endowment effect can be seen as a type of cognitive bias that affects people's decisions and behaviors in the realm of economics and consumer behavior.

Question 8

Suppose you pre-ordered a non-refundable movie ticket to X-Men: Apocalypse.On the day of the movie you decide that you would rather not go to the movie.According to economists, what is the rational thing to do?

Accepted Answer

Economists would recommend that you should not let the sunk cost (the price of the ticket) affect your decision. Instead, you should only consider whether you still want to see the movie or not. If you do not want to see the movie, it is rational not to go to the movie despite having already paid for the ticket. This is because going to the movie would still require you to invest additional resources (like time and transportation costs) that you could instead use for other activities that you would enjoy more. Therefore, the rational choice is not to go to the movie if you do not want to watch it anymore.

Question 9

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets, and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are an example of

Accepted Answer

The endowment effect describes the behavior observed in this scenario: people place a higher value on something they own compared to the same thing if they do not own it. In this case, the fans value their Super Bowl tickets more than $3,000 because they already own them, but they would not be willing to pay $3,000 nor sell the tickets for that amount if they did not own them. This is based on psychological factors and does not necessarily reflect rational economic behavior. The fallacy of composition and the failure to ignore sunk costs do not apply to this scenario.

Question 10

Alan Krueger conducted a survey of fans at the 2001 Super Bowl who purchased tickets to the game for $325 or $400.Krueger found that (a)94 percent of those surveyed would not have paid $3,000 for their tickets, and (b)92 percent of those surveyed would not have sold their tickets for $3,000.These results are evidence of

Accepted Answer

The answer of Alan Krueger conducted a survey of fans...

Question 11

Costs that have already been incurred, and which cannot be recovered, are known as

Accepted Answer

sunk costs are the costs that have already been incurred and cannot be recovered. Short-run fixed costs are still ongoing and can be avoided in the future, implicit costs are opportunity costs that do not involve actual expenditures, and unavoidable costs may still be ongoing and can be avoided in the future.

Question 12

A common mistake made by consumers is the failure to take into account the sunk costs of their actions.

Accepted Answer

Sunk costs refer to past expenses that cannot be recovered. Consumers often make decisions based on the incremental costs and benefits of a future action, rather than including the sunk costs which are irrelevant to the current decision. This can lead to inefficient decision-making and wastage of resources.

Question 13

The endowment effect is the tendency of people to be unwilling to sell a good they already own even if they are offered a price greater than they would be willing to pay to buy the good if they did not already own it.

Accepted Answer

This is the definition of the endowment effect as recognized in the field of behavioral economics.

Question 14

Behavioral economics is the study of situations in which people make rational choices.

Accepted Answer

Behavioral economics is the study of how people make decisions that deviate from rationality, often due to cognitive biases and emotional factors.

Question 15

Suppose Adam Einberg pays $100 for a ticket to a new Broadway play and $100 was the maximum price he was willing to pay.On the day of the performance of the play Adam refuses to sell the ticket for $150.How would behavioral economists explain Adam's refusal to sell his ticket?

Accepted Answer

The endowment effect describes the tendency for people to place a higher value on things they own compared to things they do not own. In this case, Adam is unwilling to sell his ticket for a higher price because he has become attached to it and views it as more valuable now that he possesses it. This is a common behavioral bias that can affect economic decision-making.

Question 16

Which of the following is a common mistake made by consumers?

Accepted Answer

The answer of Which of the following is a common...

Question 17

A sunk cost is

Accepted Answer

A sunk cost refers to a cost that has already been incurred and cannot be recovered, regardless of whether or not a particular decision is made. It is a cost that has already been "sunk" and cannot be changed.

Question 18

Wilbur Rickhiser, a financial advisor, recently told one of his clients: "The biggest mistake you can make is to hold onto a stock for too long in order to avoid a loss.Let's say you bought a stock for $50 per share but that six months later the price fell to $40 after a poor earnings report.Many of my clients in this situation will hold the stock, hoping the price will later rise above $50.In most cases like this the price does not rise and may even fall.You must know when to cut your losses." Which of the following is the best explanation for Rickhiser's advice?

Accepted Answer

The answer of Wilbur Rickhiser, a financial advisor, recently told...

Question 19

One reason college students do not study enough to get high grades is that they are unrealistic about their future behavior.

Accepted Answer

This is because college students often overestimate how much they will study and underestimate the distractions and other demands on their time. They may also have unrealistic expectations about how quickly they will learn and how easy their courses will be.

Question 20

A common mistake made by consumers is the failure to take into account the monetary costs of their actions.

Accepted Answer

The answer of A common mistake made by consumers is...

Quiz 10: Consumer Choice and Behavioral Economics