What Is the Endowment Effect

question 107

Multiple Choice

What is the endowment effect?

• A) The phenomenon that economic agents are endowed with different qualities and abilities so that trade among individuals increases efficiency.
• B) The tendency for economic agents with abundant resources to consume a proportionately greater quantity of goods and services.
• C) The tendency for people to be unwilling to sell something they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it.
• D) The tendency of firms to use celebrities endowed with good looks to promote their products.

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Definitions:

Net Loss

The amount by which total expenses exceed total revenues, indicating that a business spent more than it earned during a given period.

Net Loss

This occurs when a company's expenses exceed its revenues during a specific period of time, leading to a negative net income.

Ending Capital

The amount of capital a company or individual has at the end of a financial period, after all transactions have been accounted for.

Income Summary

An account in the general ledger used to transfer the balances of temporary accounts to permanent accounts at the end of an accounting period.