Some Economists Have Argued That Path Dependence and Switching Costs

question 2

Multiple Choice

Some economists have argued that path dependence and switching costs can lead to market failure.Which of the following is an example of this argument?

• A)Costly celebrity endorsements lead many consumers to buy a product even though it is more expensive or less effective than a product that is not endorsed by a celebrity.
• B)A consumer who won a lottery for a Super Bowl ticket refuses to sell it for $3,000 even though he would not have paid $3,000 for a ticket if he had not won the lottery.
• C)While playing the ultimate game, an allocator decides to share $20 equally with a recipient rather than keep the $20 for herself.
• D)VHS video recorders became more popular with consumers than Sony Betamax recorders even though the Betamax recorders embodied a superior technology.

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Definitions:

Premium Grade

Premium grade typically refers to products or materials that are of higher quality and therefore command a higher price.

Split-Off Point

The moment in the production process where multiple products become distinguishable from one another, and individual cost tracking can begin.

Net Operating Income

A measure of a company's profitability calculated as its total revenue minus operating expenses, excluding taxes and interest.

Relevant Costs

Costs that should be considered in decision-making because they vary depending on the choices available.