Deck 8: Behavioral Economics: a Closer Look at Decision Making

Question 1

How does the concept of time inconsistency explain procrastination?

A)People have several modes of decision making, and the less time they have to react, the worse their decisions are.
B)An individual's ability to remember long-term benefits when making decisions diminishes the closer the action becomes.
C)People have two selves, a "future-oriented" self and a "present-oriented" self, which have conflicting objectives when it comes to decision making.
D)People never take long-term benefits into account when making decisions.

Answer 1

People have two selves, a "future-oriented" self and a "present-oriented" self, which have conflicting objectives when it comes to decision making.

Question 2

Luke and his friend Simon won tickets to see a popular musician's concert. Even though neither Luke nor Simon is familiar with the artist's music, they go to the concert anyway. Twenty minutes into the concert, both Luke and Simon decide they hate the music and the screaming fans. Luke wants to leave even though the concert is scheduled to continue for another hour. However, Simon argues that they should stay to get the full value of the tickets. Which of the following statements is true?

A)Simon's argument is currently irrational, but it would be considered rational if they had paid money for the tickets.
B)Luke would change his mind about leaving if they had paid money for the tickets.
C)It is rational for Luke and Simon to leave the concert early.
D)All of these are true.

Answer 2

It is rational for Luke and Simon to leave the concert early.

Question 3

Behavioral economics draws on insights from:

A)psychology to expand models of individual decision making.
B)anthropology to clarify models of individual decision making.
C)business theory to expand models of household behavior.
D)sociology to expand models of household behavior.

Answer 3

psychology to expand models of individual decision making.

Question 4

Which of the following demonstrates the assumption of rational behavior?

A)Saying you want to lose weight but ordering dessert.
B)Being willing to pay more for something if you use a credit card than if you use cash.
C)Watching to the end of a movie that you're not enjoying at all.
D)All of these demonstrate irrational behavior.

Question 5

The concept of time inconsistency explains:

A)how someone who plans to eat salad for dinner every night, but ends up eating pizza three nights in a row, can still be rational.
B)how someone who pays more for a good using a credit card than if cash were used can still be rational.
C)why people can ignore some sunk costs but cannot ignore others.
D)None of these behaviors can be explained by time inconsistency.

Question 6

Scott and Tom are having dinner together at a new restaurant. They discover after ordering that the portions are huge, but the restaurant does not allow customers to take leftovers home so they eat until they both decide they are full. After this point, Scott forces himself to finish the rest of his food, even though he doesn't really want to, while Tom asks the waiter to remove his partially-full plate of food. How would an economist describe this behavior?

A)Scott acted rationally, because the food would have otherwise been thrown away.
B)Tom acted rationally, maximizing his utility.
C)Both Tom and Scott acted rationally.
D)Both Tom and Scott acted irrationally.

Question 7

An individual who expresses a desire to lose weight but orders dessert exemplifies:

A)rational decision making.
B)rational behavior.
C)irrational behavior.
D)utility-maximizing behavior.

Question 8

Joe walks into Best Buy prepared to spend no more than $500 on a new computer, but the price for the computer he wants turns out to be $600. The salesperson explains that if Joe finances the purchase on a Best Buy credit card, he will receive a $25 gift card free with the $600 computer purchase. Joe opts to open the credit card and puts the full $600 on the account. According to economic theory, Joe's decision is:

A)irrational.
B)rational.
C)budget-conscious.
D)optimal.

Question 9

Economists make the general assumption that:

A)people are rational, but their behavior doesn't always follow this assumption.
B)people are irrational, but there are some correlations in behavior that have been proven.
C)people are rational, but this doesn't really ever resemble reality.
D)people are irrational, but this is too difficult to put into a model.

Question 10

Mateo has $2,000 in cash, which he's saving to spend on a trip over spring break.. However, during the holiday season he spends $400 of that cash on gifts to avoid using his credit card, thus avoiding interest charges. He gradually replaces the $400 over the next two months. An economist would say this behavior is:

A)rational.
B)irrational.
C)utility minimizing.
D)not observable.

Question 11

A behavioral economist might recommend a mechanism that helps people:

A)find the lowest cost for items that maximize their utility.
B)stick with choices they say they want to make, but often don't.
C)enact utility-maximizing decisions based on complete information.
D)None of these are actions for which a behavioral economist might recommend a mechanism.

Question 12

Which of the following explains the concept of time inconsistency?

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

Question 13

The field of economics that draws on insights from psychology to expand models of individual decision making is called:

A)psychological economics.
B)behavioral economics.
C)emotional economics.
D)decision optimization economics.

Question 14

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

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

Question 15

In order to prompt children to eat the food they're served, mothers have relied for decades on the argument that "there are starving children in Africa." Assuming the presence of hungry children on another continent does not affect the utility you derive from the food on your plate, if you choose to force down food based on this argument you are:

A)acting rationally.
B)putting the needs of starving children over your own wants.
C)acting irrationally.
D)doing your part in the fight against world hunger.

Question 16

Marcella has $2,000 in cash, which she's saving to spend on a trip over spring break. She charges $600 to her credit card purchasing holiday gifts for her family. She must pay 10 percent interest on the card's outstanding balance every month, and decides to pay off the credit card balance gradually over the next two months. An economist would categorize Marcella's behavior as:

A)rational.
B)irrational.
C)misallocated.
D)scarce.

Question 17

Jun complains that he never has enough time to finish all the homework he's assigned. His roommate tells Jun to quiet down because the first of the three movies they've planned to watch that day has begun. Jun's behavior demonstrates which economic concept?

A)Rational behavior
B)Time inconsistency
C)Chronologically challenged behavior
D)Time allocation

Question 18

When people change their minds about what they want simply because of the timing of the decision, they are experiencing:

A)time inconsistency.
B)information overload paradox.
C)cost-price inconsistency.
D)time barriers to optimization.

Question 19

Some behavioral economists recommend mechanisms that are meant to help people actually do the things they say they want to do, but often don't. Such mechanisms are often called:

A)savings rates.
B)charitable donations.
C)self-control.
D)commitment devices.

Question 20

Applying the concept of time inconsistency, we can say that, in general, a person's future-oriented self:

A)has the same objectives as a person's present-oriented self, but articulates those objectives differently.
B)tends to choose healthier options, whereas a person's present-oriented self gives into temptation more easily.
C)is less rational in decision-making, because that self rarely matches actual behavior.
D)is more rational in decision-making, because its choices are generally healthier or more altruistic.

Question 21

In an effort to lose weight, Sam posts flyers all over town that offering a reward of $50 to anyone who catches him eating unhealthy food. Sam's flyers are an example of:

A)a commitment device.
B)price-optimization theory.
C)the law of supply.
D)a way to deal with inconsistent costs.

Question 22

Rick finds a great Internet deal on an all-inclusive vacation rental in the Bahamas for $1,200 and immediately pays a $1,000 nonrefundable deposit to reserve the trip. He later learns that the dates for the trip are right in the middle of hurricane season, when the weather is likely to be gloomy and potentially dangerous weather. Rick decides he cannot waste the $1,000 he already paid and takes the trip anyway. While sitting in the rain, miserable, Rick realizes he should have:

A)ignored the sunk cost of $1,200 and skipped the trip.
B)ignored the sunk cost of $1,000 and skipped the trip.
C)hired a lawyer to go to court and try to get his deposit back.
D)hired a lawyer to sue the travel agency.

Question 23

Jake brings his video game console home over winter break and leaves it there, thinking he will study more during the spring semester without it around. Jake is:

A)trying to compensate for the time-inconsistency of his desire to study more when faced with the temptation to play video games instead.
B)forcing his behavior to match economic theory.
C)not acting rationally, since what he really wants is to play video games.
D)demonstrating that he has forgotten the fungibility of money.

Question 24

Cara declares that she is going to start eating a vegetarian diet. However, the next morning her roommate cooks extra bacon, and Cara decides to eat it. Cara's behavior is an example of:

A)the sunk cost fallacy.
B)time inconsistency.
C)undervaluing opportunity costs.
D)overvaluing opportunity costs.

Question 25

Karina often plans to go to an aerobics class at the gym but ends up staying home and watching Netflix instead. She recently joined a gym that requires members to reserve a space in a class before attending. If a member has reserved a space, but does not show up for the class, a fine of $15 is charged to the member's account. This penalty scheme is designed to combat:

A)commitment aversion.
B)the sunk cost fallacy.
C)time inconsistent behavior.
D)the fungibility of money.

Question 26

Jane wants to save more of her money. Which of the following would be a good commitment device for Jane?

A)An agreement that Jane give any new goods purchased to her best friend
B)A commitment to only buy goods that are on sale
C)A decision to cook her own food and avoid eating out unless she is very busy
D)The purchase of a piggy bank to store all money she saves

Question 27

Which of the following is an example of a commitment device?

A)Buying yourself an ice cream cone as a reward after going to the gym.
B)Putting a reminder on the cookie jar that you want to lose weight.
C)Making an agreement with friends to put $5 into a swear jar each time someone swears.
D)All of these are examples of commitment devices.

Question 28

Beth really wants to get in shape, but just can't seem to ever get herself to the gym. An example of a commitment device Beth could use would be to:

A)spend time doing something she really enjoys, like watching a movie, before going to the gym.
B)allow herself to eat one dessert as a reward for each visit to the gym.
C)make arrangements to meet with an exercise buddy every day at the gym to work out together.
D)None of these are commitment devices Beth could use.

Question 29

Suppose Maisie wants to change her diet and chooses to eat only healthy foods. Deciding not to buy any junk food at the grocery store while shopping for the week is an example of:

A)removing temptation in an effort to match present-oriented decisions more closely to future-oriented ones.
B)how individuals may compensate for the time inconsistency of their actions.
C)a tool an individual can use in order to take the actions the individual wants to take, but has a hard time taking.
D)All of these are correct.

Question 30

Behavioral economics uses concepts and theories from the field of _____ to explain _____, the systematic patterns in behavior that lead to consistently erroneous decisions.

A)psychology; cognitive dissonances
B)anthropology; disruptive biases
C)anthropology; receptive biases
D)psychology; cognitive biases

Question 31

An example of a sunk cost would be:
I. the cost of a movie ticket after you've started watching the movie.
II. the value of a lift ticket after you've started skiing.
III. the admission fee you paid to enter a national park.

A)I only
B)I and III only
C)II only
D)I, II, and III

Question 32

Rick finds a great Internet deal on an all-inclusive vacation rental in the Bahamas for $1,200 and immediately pays a $1,000 nonrefundable deposit to reserve the trip. He later learns that the dates for the trip are right in the middle of hurricane season, when the weather is likely to be gloomy and potentially dangerous. Rick decides he cannot waste the $1,000 he has already paid and takes the trip anyway. While sitting in the rain, miserable, Rick realizes that:

A)he fell victim to the sunk cost fallacy and should have ignored the fact that the $1,000 was gone.
B)he fell victim to the implicit cost fallacy and should have ignored the fact that the $1,000 was gone.
C)he fell victim to the fungibility fallacy and should not have gone on the trip.
D)going on the trip was a utility minimizing experience.

Question 33

Lucas is having trouble keeping his spending within his budget. He decides to cancel his credit card and cuts up his ATM card. Each week he goes to the bank and withdraws only the amount of cash he has budgeted for the week. If he needs more money, he will have to make an extra trip to the bank. This behavior is an example of:

A)increasing the cost of a vice.
B)a commitment device.
C)how people compensate for time-inconsistent decisions.
D)All of these are correct.

Question 34

Eva knows her GPA would greatly improve if she could break her habit of playing video games every evening. An example of a commitment device Eva could use would be to:

A)allow herself one hour of gaming for every half-hour of studying she does each day.
B)exercise before studying in order to be refreshed.
C)loan her friend her gaming console on days she needs to study.
D)All of these are commitment devices Eva could use.

Question 35

Brett desperately wants to quit smoking, but just can't seem to do it on his own. So, he tells his friends that he will pay them $20 each time they catch him smoking. This agreement with Brett's friends is an example of:

A)an irrational choice.
B)an opportunistic device.
C)a commitment device.
D)an irrational device.

Question 36

What are sunk costs?

A)Costs that have been incurred and cannot be recovered
B)Explicit costs that will incur large implicit costs to recoup or recover
C)Costs that are upfront on a project and can be pulled out if the business goes under
D)Costs incurred to recover lost expenditures

Question 37

A couple watching a movie at the theater realizes halfway through that they are not enjoying the movie at all. However, they watch the entire movie because they already paid for tickets to see the movie. This is an example of:

A)the sunk cost fallacy.
B)making a decision at the margin.
C)rational behavior.
D)negative utility endorsement.

Question 38

Sophia would like to reduce the amount of time she spends on her phone, but she finds it difficult to stop her behavior. She decides to install an app that limits screen time. If she wants to continue using her phone when the time limit is up, she'll have to uninstall the app. This is an example of:

A)the sunk cost fallacy.
B)a commitment device.
C)time fungibility.
D)re-valuing time preferences.

Question 39

A commitment device is:

A)an arrangement an individual enters into to help fulfill a plan for future behavior that would otherwise be difficult.
B)only effective if it is a legally enforceable contract.
C)a mechanism that helps one individual commit another individual to a particular decision or plan.
D)a strategy for overcoming the problem of undervaluing opportunity costs.

Question 40

Which of the following is an example of a sunk cost?

A)The price of a lift ticket you bought and used to ski the whole day
B)The price of a lift ticket you bought and used for one run before you fell and sprained your ankle
C)The nonrefundable deposit you paid to rent a hotel room for a vacation
D)All of these are examples of sunk costs.

Question 41

Economists believe that:

A)every choice has a sunk cost.
B)only some choices have an opportunity cost.
C)every choice has an opportunity cost.
D)sunk costs are a figment of one's imagination.

Question 42

Sandy is a big Star Wars fan and buys a $20 ticket a week in advance to the premiere of the new movie. After arriving at the theater, she realizes she forgot the ticket at home and doesn't have time to go back and get it. Sandy can afford to buy another ticket for $20, but she decides not to because seeing the movie isn't worth $40 to her. This is an example of:

A)rational behavior, because she values the movie less than $40.
B)irrational behavior, because she really values the movie more than $40.
C)irrational behavior, because the initial $20 is a sunk cost.
D)rational behavior, because she is using the experience as a commitment device against forgetting tickets at home in the future.

Question 43

Tiago has a $3,000 student loan principal with an annual interest rate of 6 percent. Tiago has just received an annual bonus from his workplace of $1,500 and is trying to decide what to do with the money. He could put the money toward paying down his student loan balance, or he could open a savings account with an annual interest rate of 2 percent. Assume that there will be no additional opportunities during the year for Tiago to put money toward his student loans or into a savings account. If he is acting rationally, what action should Tiago take?

A)Open a savings account, because it's always wise to have money set aside for an emergency.
B)Open a savings account, because he'll earn $30 in interest.
C)Put the money toward his student loans, because he can't be certain whether he'll receive another bonus next year.
D)Put the money toward his student loans, because he'll avoid owing $90 in interest.

Question 44

While shopping for a concert ticket to see One Direction, Ayumi's favorite band, she mistakenly purchases a non-refundable ticket for the Off-Off Broadway play One Dissection. Ayumi has no interest in seeing this play, but because the ticket cost her $100 she is unsure what to do. In the end, Ayumi's best decision if she is thinking rationally would be to:

A)skip the play and spend another $100 on the concert ticket.
B)go to the play, in the hopes that it might not be as awful as she thinks it will be.
C)skip both the play and the concert she originally wanted to attend, to cancel out the money she lost.
D)go to the play, since she paid for the ticket, and also buy a ticket to the concert she originally wanted to attend.

Question 45

Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunk in the middle. Jason thinks about all the time he invested in making the cake and decides to frost and eat it anyway, even though it tastes pretty terrible. Jason's decision to decorate and eat the cake is an example of:

A)focusing on sunk costs.
B)ignoring sunk costs.
C)thinking marginally.
D)weighing the opportunity costs of frosting and eating the cake against the benefits of doing so.

Question 46

Mikkel purchases two hours of skate time at the local hockey rink. After skating for one hour, Mikkel is cold, tired, and hungry. If Mikkel decides to continue skating for the second hour, he is likely:

A)ignoring the sunk cost of the purchased skate time.
B)focusing on the sunk cost of the purchased skate time.
C)weighing the opportunity costs of the second hour of skating against the benefits.
D)None of these are correct.

Question 47

Opportunity cost is sometimes undervalued because it is:

A)easy to miscalculate.
B)difficult to visualize benefits.
C)difficult to visualize.
D)just theoretical.

Question 48

In economics, we assume rational decisions are made when individuals weigh the:

A)sunk costs versus the benefits of an action.
B)sunk costs versus the opportunity costs of an action.
C)opportunity costs versus the benefits of an action.
D)opportunity and sunk costs versus the benefits of an action.

Question 49

In economics, we assume a rational person will choose to perform an activity if the:

A)opportunity costs outweigh the benefits of doing so.
B)sunk costs outweigh the benefits of doing so.
C)benefits of doing so outweigh the opportunity costs and the sunk costs.
D)benefits of doing so outweigh the opportunity costs.

Question 50

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

A)the value she places on the drink she would choose if she didn't pick Gatorade.
B)the cost of the drink she would choose if she didn't pick Gatorade.
C)the value she places on all the other drinks she could choose instead of Gatorade.
D)the cost of not having anything to drink.

Question 51

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

A)benefits outweigh the opportunity costs.
B)opportunity costs outweigh the benefits.
C)benefits outweigh the sunk costs.
D)sunk costs outweigh the opportunity costs.

Question 52

In economics, a person who is choosing one activity:

A)chooses not to take advantage of another opportunity.
B)is always acting rationally.
C)is signaling that this activity alone brings enjoyment.
D)chooses the activity that is most observable.

Question 53

Bill attends a local basketball game. The teams are very unbalanced, the play is bad, and the score quickly reaches 36-2. At halftime, Bill realizes he's having no fun, so he leaves the game and goes home. Bill's behavior is not determined by:

A)economic logic.
B)sunk costs.
C)utility maximization.
D)opportunity cost.

Question 54

Patti sees a new type of cereal in the grocery store that sounds intriguing. Even though the new cereal is more expensive than the kind she usually buys, she decides to try it anyway. However, after eating just one bowl Patti decides she does not care for the new cereal at all. What is likely to happen next?

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

Question 55

Beverly spends $100 on a teeth whitening kit. However, after just one application her gums are inflamed and her teeth feel painful when she eats hot or cold foods. When deciding whether to apply the treatment again or throw the kit away, Beverly should understand that the opportunity cost of a second application is:

A)$100.
B)the pain and suffering involved with the second application.
C)$100 plus the pain and suffering involved with the second application.
D)$100 plus the pain and suffering involved with the first and second applications.

Question 56

After enjoying a delicious meal, Duane treats himself and orders a very expensive dessert. After one bite, Duane realizes he does not care for the dessert at all. However, he forces himself to eat the whole dessert while thinking about the money he just wasted on it. Duane's decision is an example of:

A)irrational behavior.
B)a cognitive bias, because he is focused on the money spent on the dessert.
C)emphasizing a sunk cost instead of weighing marginal costs and benefits.
D)All of these are exemplified by Duane's decision.

Question 57

Kei's employer provides a free lunch for all employees on the last day of every month. Each employee can choose one sandwich, one drink, and one cookie. The cookie options are chocolate chip and oatmeal raisin. The opportunity cost of Kei choosing a chocolate chip cookie is:

A)zero, because the cookie is free.
B)the time it takes her to eat the cookie.
C)the value she places on an oatmeal raisin cookie.
D)the cost of the cookie paid by her employer.

Question 58

Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunken in the middle, and Jason considers whether or not he should throw it away. If Jason were rational, he would compare the _____, which is _____, to the benefits of eating a ruined cake.

A)sunk cost; the time and ingredients spent making the cake
B)opportunity cost; the value of the time spent and utility received from either eating the cake or doing something else instead
C)opportunity cost and sunk cost; the value of the time spent making the cake, the cost of ingredients, and the value of the time that could be spent doing something other than eating the cake
D)benefits of throwing the cake away; the value of not having to eat burnt cake

Question 59

People consistently consider sunk costs when weighing the trade-offs involved in a decision because they:

A)are rational.
B)are utility maximizers.
C)think at the margin.
D)find it hard to accept their losses.

Question 60

Which of the following is an example of irrationally considering sunk costs when making a decision?

A)A family pays $20 to enter an amusement park for the day and leaves after an hour.
B)A family pays $20 to enter an amusement park for the day and stays all day.
C)An individual pays $50 for a baseball game ticket and ends up sitting through the entire game in the freezing rain.
D)An individual pays $50 for a baseball game ticket and ends up enjoying the entire game.

Question 61

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

A)gain negative utility from insulting the chef.
B)overvalue the opportunity costs of their health and time involved with eating food they don't really want.
C)consider the sunk cost of their meals when making their decisions.
D)undervalue the true benefit of eating too much.

Question 62

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

A)have a difficult time accurately valuing the benefit of seeing a movie.
B)have a hard time accurately valuing her opportunity cost of seeing a movie.
C)overvalue her opportunity cost of seeing a movie.
D)All of these are correct.

Question 63

Economists believe that people who sit through events that they don't enjoy likely do so because:

A)they do not ignore the sunk cost involved.
B)they undervalue the opportunity cost of their time.
C)they don't accurately consider what else they could be doing with their time.
D)All of these are correct.

Question 64

The implicit cost of ownership:

A)is a cognitive bias if it goes ignored.
B)leads people to value things more once they possess them.
C)is a nonmonetary opportunity cost that is often overlooked.
D)All of these are correct.

Question 65

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

A)the harder it is to value accurately.
B)the more it should be valued.
C)the more it will be influenced by time inconsistency.
D)All of these are correct.

Question 66

Jasmine is trying to decide what to do with her time this summer. She could take two summer courses that will cost her $1,500 each. Alternatively, she could work as an intern, earning $5,000. What is the opportunity cost of taking summer classes?

A)$1,500
B)$5,000
C)$7,500
D)$3,500

Question 67

People are especially prone to undervaluing opportunity costs when:

A)the costs are nonmonetary, such as time.
B)the costs are obvious, such as lost wages.
C)the costs are monetary.
D)the costs are explicit.

Question 68

Priya is ice skating with her friends and having so much fun that she wants to skate for another hour. However, each hour of ice skating costs $8, plus a one-time skate rental fee of $5. In addition, skating for another hour will make Priya one hour late for her job, where she earns $13 per hour. What is Priya's opportunity cost of skating for another hour?

A)$18
B)$13
C)$26
D)$21

Question 69

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

A)overvalue the benefit of skiing.
B)undervalue the opportunity cost of his afternoon.
C)find it difficult to place a value on what he might do instead of skiing.
D)All of these are correct.

Question 70

Allie's car needs an oil change. She can take the car to an auto shop and have the oil changed for $35 or she can change the oil herself for $10. If Allie changes the oil herself, she will have to take two hours off from her job where she earns $15 per hour. Which of the following statements is true?

A)Allie should change the oil herself, because $10 is cheaper than $35.
B)The opportunity cost of changing the oil herself is $30.
C)Allie should change the oil herself, because the opportunity cost of changing it is only $30.
D)The opportunity cost of changing the oil herself is $40.

Question 71

A consumer is likely to _____ his opportunity costs when they are _____.

A)undervalue; not obvious
B)undervalue; obvious
C)overvalue; not obvious
D)overvalue; obvious

Question 72

Dale just won tickets to see a NASCAR race. His coworker offers to pay him $200 for the tickets, 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:

A)the explicit cost of ownership.
B)the high fungibility of money.
C)his refusal to ignore the sunk cost of the tickets.
D)None of these are correct.

Question 73

Neema has just spent one hour roller skating with her friends and is trying to decide whether to skate for another hour. Each hour of roller skating costs $7, plus a one-time skate rental fee of $6. Skating for another hour will make Neema one hour late for her job, where she earns $13 per hour. Which of the following statements is true?
I. The $6 skate rental fee is a sunk cost.
II. The opportunity cost of skating for one more hour is $13.
III. Neema should keep skating if the value she places on skating for one more hour is at least $20.

A)I only
B)II only
C)I and III only
D)I, II, and III

Question 74

Howie just bought a new digital camera to replace his old one, which works perfectly fine and would sell on eBay for $100. The fact that Howie would not pay $100 for the old camera, yet he continues to let it sit unused his closet, is explained by:

A)the implicit cost of ownership bias.
B)the explicit cost of ownership bias.
C)the explicit cost of sales bias.
D)ignoring sunk costs.

Question 75

Kyohei wants to buy a new guitar that costs $500. He has the money available in his savings account, but he is considering charging the purchase to a credit card with an annual interest rate of 10 percent. If he charges the $600 to his credit card, he would pay off the balance in full in one year. The annual interest rate in his savings account is 3 percent. What is Kyohei's opportunity cost of purchasing the guitar using his credit card?

A)$35
B)$50
C)$550
D)$535

Question 76

Kylie wins two free passes to the symphony from a raffle. She has never been to the symphony before and would probably not buy these tickets for their face value of $120. Regardless, Kylie decides to use the tickets rather than sell them at face value. This type of behavior is:

A)irrational, because Kylie would not pay $120 for the tickets yet gives up $120 by not selling them.
B)rational, because Kylie can experience the symphony for the first time without having to pay for it.
C)irrational, because Kylie ignores the sunk cost of $120.
D)rational, because Kyle does not ignore the sunk cost of $120.

Question 77

Sadie just bought a new karaoke machine to replace her old one, which works perfectly fine and would sell on Craigslist for $50. The fact that Sadie would not pay $50 for the old karaoke machine, yet continues to let it sit in her closet unused, is explained by:

A)the implicit cost of ownership bias.
B)the cost of admitting she likes karaoke.
C)ignored sunk costs.
D)irrationally considering sunk costs.

Question 78

Jim recently bought a new bike and rides it every day, while his old bike sits in the garage untouched. What is Jim's opportunity cost of keeping the old bike?

A)Nothing, since he doesn't really value it anymore
B)Whatever price he could sell the old bike for
C)Whatever price he would be willing to sell the old bike for
D)All of these are correct.

Question 79

Christopher just won tickets to see an NFL football game. His coworker offers to pay him $300 for the tickets, 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)the high transaction costs involved in selling the tickets.
B)the implicit cost of ownership bias.
C)his refusal to ignore the sunk cost of the tickets.
D)None of these are correct.

Question 80

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

A)Throw it away, because she doesn't really value it anymore
B)Sell it for its market value, because that is the opportunity cost of having it sit in her basement
C)Give it away, because it is worth more to someone else than Claire
D)Either sell it for the value of her new TV or keep it