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

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Question 51

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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.

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

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Question 52

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John has $4,000 in savings that he has set aside to buy an engagement ring for his girlfriend, even though he isn't planning to propose for quite some time. When John's car needs a new transmission he charges the $2,000 repair cost to his credit card and pays off the balance over several months. John's decision shows:

A) a recognition that money is fungible.
B) that everyday expenses are easier to charge than big purchases.
C) that he has made false distinctions about his money.
D) the concept of over-consumerism.

E) None of the above
F) C) and D)

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Question 53

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

Behavioral economics draws on insights from:

Ishara just got her first iPhone as a graduation gift. She tosses her old iPod Touch (which cost her $200 when she bought it) in a drawer and never touches it again, even though she could easily sell it for $75 on Craigslist. Ishara's choice is _____ because _____.

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:

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:

Which of the following is a fungible commodity?

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:

People who refuse to pay down debt with their savings:

The implicit cost of ownership:

Sam has $500 saved up for a spring break vacation. He also is currently carrying about $300 of debt on his credit card. By choosing not to pay off his credit card with his savings, Sam is:

Which of the following is not a fungible commodity?

Which of the following is not a fungible commodity?

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

Logan has $2,000 in a checking account and wants to buy a new MacBook for $1,100. Logan decides he needs the money in his account to pay his bills next month, so he buys the MacBook by charging the $1,100 to his credit card and paying it off gradually over the next several months. Logan choosing to "save" his cash on hand for bills is:

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:

Sometimes ignoring that money is fungible can: I. be useful and help someone stay on budget. II. lead to riskier decisions than individuals would otherwise make. III. be irrational and cause costly mistakes.

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?

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: