Standard Economic Theory Asserts That Sunk Costs Are Irrelevant in Making

question 52

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, they have 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.

---

Definitions:

Information

Data that has been organized and processed to be meaningful to the person who receives it, often helping in making decisions or solving problems.

Bayley Scales

A series of standardized tests used primarily to assess the motor, language, and cognitive development of infants and toddlers.

Infant Intelligence

The cognitive abilities of infants, including their capacity for memory, problem-solving, language acquisition, and understanding of their environment.

Standardized Measure

A tool or instrument used to assess variables that have been uniformly applied across different groups to ensure comparability.