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.

---

Definitions:

Pain Reduction

The alleviation or decrease of the sensation of pain in the body through various methods, including medication, therapy, or surgical procedures.

Hypnosis

A trance-like state in which a person exhibits heightened focus, concentration, and suggestibility, often used therapeutically to modify behaviors or psychological states.

Control Pain

The process of managing or reducing discomfort using various techniques or interventions.

Social-cognitive Perspective

A viewpoint in psychology that emphasizes the importance of observation, imitation, and modeling in learning, and how individuals interact with their environment cognitively.