What Is an Example of an Endowment Effect

question 43

Multiple Choice

What is an example of an endowment effect?

• A) Riku paid $3,100 for a used car that he values at $4,000. Recently, Riku was offered $4,400 for the car but refuses to sell it.
• B) Haru receives increasing marginal utility as his 401K plan increases.
• C) Hana prefers a guaranteed $200 to a gamble with an expected value of $200.
• D) Akari refuses to transfer money from her checking account into her savings account, even though she has paid all her monthly bills.

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Definitions:

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers over a period of time.

Consumer Surplus

The difference between the maximum price consumers are willing to pay and the price they actually pay. It is the net gain derived by the buyers of the good.

Cell-Phone Service

A service provided by telecommunications companies that enables mobile phone users to make and receive calls, texts, and use data.

Utility-Maximizing

A behavioral principle where consumers allocate their income to purchase a mix of goods and services that provides the highest overall utility.