Question 1

Opportunity cost is sometimes undervalued because it is:

Accepted Answer

A)  easy to miscalculate.
B)  difficult to visualize benefits.
C)  difficult to visualize.
D)  just theoretical.E) A) and B)
F) All of the above

Question 2

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?

Accepted Answer

A)  Rational behavior
B)  Time inconsistency
C)  Chronologically challenged behavior
D)  Time allocationE) A) and B)
F) All of the above

Question 3

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:

Accepted Answer

A)  economic logic.
B)  sunk costs.
C)  utility maximization.
D)  opportunity cost.E) All of the above
F) A) and B)

Question 4

How does the concept of time inconsistency explain procrastination?

Accepted Answer

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.E) B) and C)
F) None of the above

Question 5

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?

Accepted Answer

A)  $35
B)  $50
C)  $550
D)  $535E) B) and C)
F) All of the above

Question 6

The concept of time inconsistency explains:

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 7

Elijah has set up a budget for each month. He allows himself $300 for food, $200 for bills, $100 for transportation, and $200 for entertainment. By the third week of the month, Elijah has spent nearly his entire $300 food budget, but has $100 remaining in his entertainment budget. Elijah spends his last few food dollars on rice and beans, the only thing he can afford with his remaining food money, even though he hates rice and beans. Elijah's behavior is an example of:

Accepted Answer

A)  ignoring the fungibility of money.
B)  miscategorizing money.
C)  categorical inconsistency.
D)  being rational.E) None of the above
F) A) and C)

Question 8

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

Accepted Answer

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.E) B) and C)
F) None of the above

Question 9

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

Accepted Answer

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.E) B) and C)
F) A) and B)

Question 10

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:

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 11

When we say that money is fungible, we mean that a dollar spent from your savings account is:

Accepted Answer

A)  exactly the same as a dollar spent from your checking account.
B)  intended for a purpose and isn't spent on everyday expenses like groceries.
C)  not substitutable with any other dollar you have.
D)  worth more than the dollar in cash that you have in your wallet.E) All of the above
F) C) and D)

Question 12

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:

Accepted Answer

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.E) C) and D)
F) A) and D)

Question 13

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 14

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?

Accepted Answer

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.E) None of the above
F) A) and B)

Question 15

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:

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 16

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?

Accepted Answer

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.E) All of the above
F) A) and D)

Question 17

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:

Accepted Answer

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.E) A) and C)
F) A) and B)

Question 18

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

Accepted Answer

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.E) A) and C)
F) C) and D)

Question 19

Which of the following is not a fungible commodity?

Accepted Answer

A)  Electricity
B)  Silver
C)  An oil painting
D)  None of these are fungible commodities.E) A) and B)
F) B) and C)

Question 20

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.

Accepted Answer

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 cakeE) None of the above
F) A) and C)

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

Which of the following is not a fungible commodity?

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

Correct Answer
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Correct Answer
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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?

Correct Answer
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How does the concept of time inconsistency explain procrastination?

Correct Answer
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The concept of time inconsistency explains:

Correct Answer
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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:

Correct Answer
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Correct Answer
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When we say that money is fungible, we mean that a dollar spent from your savings account is:

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

Correct Answer
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Correct Answer
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Opportunity cost is sometimes undervalued because it is:

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

Correct Answer
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Correct Answer
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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?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

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:

Correct Answer
verified

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

Which of the following is not a fungible commodity?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

How does the concept of time inconsistency explain procrastination?

Correct AnswerverifiedShow Answer

The concept of time inconsistency explains:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When we say that money is fungible, we mean that a dollar spent from your savings account is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Opportunity cost is sometimes undervalued because it is:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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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.

Correct Answer
verified

Correct Answer
verified