Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making

question 181

Multiple Choice

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions, yet studies conducted by behavioural 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 maximise 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:

Purchase-Money Security Interest

A security interest or claim on property that secures repayment of the money used to purchase the property, commonly seen in secured transactions.

Financing Statement

A document filed to give public notice of a security interest in personal property, securing payment or performance of an obligation.

Chattel Paper

A document or electronic record indicating both a monetary obligation and a security interest in or a lease of specific goods.

Monetary Obligation

A required payment of money owed by one party to another, typically defined by the terms of a contract or agreement.