Suppose a college student was given a university mug that sells for $4 in the university bookstore, and now he is unwilling to sell it even for $10. Which of the following statements best reflects the student's behavior?
A) Indifference curves are quasi-concave.
B) The more you have of something, the more you want to get rid of it.
C) The act of owning a good makes it more valuable.
D) Preferences are not always logically consistent, violating the assumption of transitivity.

Question

Quizplus · Accepted Answer

The student's behavior reflects the endowment effect, which is the phenomenon where people ascribe more value to things merely because they own them. This explains why the student values the mug more highly once it's theirs, even beyond its market price.

Suppose a College Student Was Given a University Mug That