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:

Ambivalent/Resistant Attachment

A form of insecure attachment where children typically exhibit clinginess and difficulty being soothed but resist or reject the caregiver when they attempt to offer comfort or affection.

Secure Attachment

A bond between a child and caregiver characterized by trust and confidence, resulting from the caregiver's consistent response to the child's needs.

Anxious-Preoccupied Attachment

An attachment pattern characterized by dependency or "clinginess," not feeling worthy of love coupled with a fear of abandonment.

Sensorimotor Stage

The first of the four stages of cognitive development in Piaget's theory, spanning from birth to about 2 years of age, where infants learn through interacting with the environment using their senses and motor actions.