Question 1

Christopher just won tickets to see an NFL football game.His coworker offers to pay him $300 for them,but Christopher decides to use them,even though he would never pay $300 for them himself.Christopher's willingness to consume $300 worth of tickets that he doesn't value at $300 is attributed to:

Accepted Answer

The implicit cost of ownership refers to the economic cost of owning an asset, which includes the opportunity cost of using that asset for one purpose instead of another. In this case, Christopher's decision to use the tickets even though he wouldn't pay $300 for them himself is likely due to his recognition that he would incur an implicit cost if he sold them to his coworker, as he would be forfeiting the opportunity to use them to attend the game.

Question 2

A consumer is likely to _____________ his opportunity costs when ____________.

Accepted Answer

Consumers tend to undervalue opportunity costs when they are not immediately apparent or directly in front of them, as these costs are often overlooked or underestimated in decision-making.

Question 3

Economists believe that people who sit through bad music concerts likely do so because:

Accepted Answer

People often sit through bad concerts due to not ignoring sunk costs, undervaluing opportunity costs, and not considering alternative uses of their time.

Question 4

The implicit cost of ownership:

Accepted Answer

The answer of The implicit cost of ownership:
...

Question 5

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

Grace's choice is irrational because she is not utilizing an asset that has value and could potentially be sold for $75. If she would not pay $75 to buy the iTouch today, she is essentially losing $75 by not selling it now.

Question 6

Economists believe that people who force themselves to always eat everything on their plate at a restaurant,regardless of how full they might feel,likely do so because:

Accepted Answer

The sunk cost fallacy is when someone considers past costs when making a current decision. In this case, the cost of the meal is already paid for and cannot be recovered, so some individuals may feel obligated to finish their meal even if they are full. The other options do not provide a logical explanation for why someone would force themselves to overeat.

Question 7

Jim bought a new bike and rides it every day,while his old one sits in the garage untouched.Jimâ€™s opportunity cost of keeping the old bike is:

Accepted Answer

Jim's opportunity cost of keeping the old bike is the value he could have gained from selling it, which would be the amount he could have received if he sold it in the market. Therefore, the correct choice is B, which says "whatever he could sell it for." A is incorrect because Jim's lack of interest in the old bike does not affect its opportunity cost. C and D are both partially correct, but B is the best choice because it specifically refers to the value of the old bike in the market.

Question 8

Paul wins a $500 watch in a sweepstakes and decides to keep it,even though he says he would have preferred to win $500 cash.Knowing Paul's preferences,how can we explain his decision to keep it?

Accepted Answer

Paul's decision can be explained by cognitive biases such as the endowment effect, which makes him value the watch more because he owns it, and by ignoring the opportunity cost of not having the cash. Additionally, the implicit cost of ownership may influence his decision to keep the watch.

Question 9

Claire bought a new TV,and the old one sits in her basement untouched.If Claire were rational,what would she do with the old TV?

Accepted Answer

From an economic point of view, the opportunity cost of keeping the old TV in the basement is the potential money Claire could have gotten by selling it. Therefore, selling it for its market value is the most rational choice.

Question 10

Carlos has been invited to go skiing for the afternoon with his friends.It will cost $40 for a lift ticket.It is likely Carlos will:

Accepted Answer

Carlos may overvalue the immediate enjoyment of skiing, undervalue the opportunity cost of other activities he could do, and find it difficult to quantify the value of those alternative activities.

Question 11

The implicit cost of ownership:

Accepted Answer

The implicit cost of ownership includes cognitive biases and nonmonetary opportunity costs, leading people to value possessions more highly.

Question 12

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

The answer of Kyle receives two free passes to the...

Question 13

Behavioral economists think that the less obvious a person's opportunity cost is:

Accepted Answer

Behavioral economists believe that when opportunity costs are less obvious, individuals are more likely to undervalue or inaccurately assess them, making all the statements true.

Question 14

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:

Accepted Answer

The implicit cost of ownership refers to the cost of owning an item that is not being used, such as the opportunity cost of the space it takes up in the closet or the loss of potential income from selling it. In this case, Howie is choosing to keep his old camera unused, despite the fact that he could sell it for $100, because the implicit cost of ownership is greater than the explicit cost of selling it.

Question 15

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

The answer of Keith just got an iPhone 5 for...

Question 16

People are especially prone to undervaluing opportunity costs when

Accepted Answer

People tend to undervalue opportunity costs more when they are nonmonetary, such as time, because they are more difficult to quantify in monetary terms. For example, people may not value the time spent commuting or waiting in line as much as they should because they do not assign a financial value to it. This answer is more accurate because it specifies a specific type of opportunity cost that is more prone to undervaluation, whereas option B only mentions obvious costs and option D implies that monetary opportunity costs are undervalued.

Question 17

Dale just won tickets to see a NASCAR race.His coworker offers to pay him $200 for them,but Dale decides to use them,even though he would not pay $200 for them himself.Dale's willingness to consume $200 worth of tickets that he doesn't value at $200 is attributed to:

Accepted Answer

The answer of Dale just won tickets to see a...

Question 18

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:

Accepted Answer

The implicit cost of ownership is the value of the next best alternative that is given up when a choice is made. In this case, the implicit cost of ownership is the $50 that Sadie could get for her old karaoke machine if she sold it on Craigslist. Since Sadie would not pay $50 for it, yet continues to let it sit in her closet unused, this suggests that she is irrationally considering sunk costs.

Question 19

Carla is deciding whether to go to the movies this afternoon.Behavioral economists predict Carla likely will:

Accepted Answer

The answer of Carla is deciding whether to go to...

Question 20

Kate receives two free passes to the waterpark for her birthday.She's not a huge fan of waterparks,and,therefore,would not buy such tickets for their face value of $90.Kate decides to use the tickets.This type of behavior is explained with the concept of:

Accepted Answer

The answer of Kate receives two free passes to the...

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

Christopher just won tickets to see an NFL football game.His coworker offers to pay him $300 for them,but Christopher decides to use them,even though he would never pay $300 for them himself.Christopher's willingness to consume $300 worth of tickets that he doesn't value at $300 is attributed to:

A consumer is likely to _ his opportunity costs when .

Economists believe that people who sit through bad music concerts likely do so because:

The implicit cost of ownership:

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 ______.

Economists believe that people who force themselves to always eat everything on their plate at a restaurant,regardless of how full they might feel,likely do so because:

Jim bought a new bike and rides it every day,while his old one sits in the garage untouched.Jimâ€™s opportunity cost of keeping the old bike is:

Paul wins a $500 watch in a sweepstakes and decides to keep it,even though he says he would have preferred to win $500 cash.Knowing Paul's preferences,how can we explain his decision to keep it?

Claire bought a new TV,and the old one sits in her basement untouched.If Claire were rational,what would she do with the old TV?

Carlos has been invited to go skiing for the afternoon with his friends.It will cost $40 for a lift ticket.It is likely Carlos will:

The implicit cost of ownership:

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:

Behavioral economists think that the less obvious a person's opportunity cost is:

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:

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.

People are especially prone to undervaluing opportunity costs when

Dale just won tickets to see a NASCAR race.His coworker offers to pay him $200 for them,but Dale decides to use them,even though he would not pay $200 for them himself.Dale's willingness to consume $200 worth of tickets that he doesn't value at $200 is attributed to:

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:

Carla is deciding whether to go to the movies this afternoon.Behavioral economists predict Carla likely will:

Kate receives two free passes to the waterpark for her birthday.She's not a huge fan of waterparks,and,therefore,would not buy such tickets for their face value of $90.Kate decides to use the tickets.This type of behavior is explained with the concept of: