Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making

question 240

Multiple Choice

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

• A)People measure the value of a good in terms of its purchase price.
• B)Even though sunk costs cannot be recovered, it has been incurred and therefore should be treated as part of the product's value.
• C)If consumers maximize their utility, it makes sense to consider the full purchase price of a product in their consumption decisions.
• D)Sunk costs have a higher opportunity cost than costs that can be recovered.

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Definitions:

Disease Of Adaptation

A concept referring to the adverse health effects that occur as a result of the body's efforts to cope with stress.

Alarm Stage

The first phase in the stress response, in which the body prepares to fight or flee from a perceived threat.

Hardy Personality

A trait characterized by resilience, the ability to cope with stress in a healthy way, and the tendency to view life challenges as opportunities for growth.

General Adaptation Syndrome

An explanation revealing how the body deals with stress over time through a three-stage process: the initial alarm phase, the resistance phase, and finally, the exhaustion phase.