Suppose That a Person Makes a Choice That Seems Inconsistent

question 112

Multiple Choice

Suppose that a person makes a choice that seems inconsistent with the cost-benefit principle.Which of the following statements represents the most reasonable conclusion to draw?

• A) The person (explicitly or implicitly)over-estimated the benefits or under-estimated the costs or both.
• B) The abstraction of the cost-benefit principle is so great as to be unable to explain behaviour.
• C) The person does not grasp how decisions should be made.
• D) The person is simply irrational.
• E) Because people do not explicitly calculate benefits and costs,it is not surprising that choices are made which violate the cost-benefit principlE.

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Definitions:

Demand for Money

The need or desire to hold money as opposed to investing or spending it, influenced by factors such as interest rates and economic stability.

Liquidity Preference

The desire of consumers and businesses to hold onto cash or easily convertible assets rather than making long-term investments or transactions.

Supply and Demand

The fundamental economic model for price determination in a market, describing the relationship between the quantity of a good that producers wish to sell at various prices and the quantity that consumers wish to buy.

Interest-Rate Effect

The interest-rate effect describes how changes in the central bank's interest rate influence the level of overall spending in the economy by affecting borrowing costs.