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Exam 8: Behavioral Economics: a Closer Look at Decision Making

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Question 31

Multiple Choice

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Allie's car needs an oil change. She can take the car to an auto shop and have the oil changed for $35 or she can change the oil herself for $10. If Allie changes the oil herself, she will have to take two hours off from her job where she earns $15 per hour. Which of the following statements is true?

A) Allie should change the oil herself, because $10 is cheaper than $35.
B) The opportunity cost of changing the oil herself is $30.
C) Allie should change the oil herself, because the opportunity cost of changing it is only $30.
D) The opportunity cost of changing the oil herself is $40.

E) None of the above
F) A) and C)

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Question 32

Multiple Choice

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Opportunity cost is sometimes undervalued because it is:

A) easy to miscalculate.
B) difficult to visualize benefits.
C) difficult to visualize.
D) just theoretical.

E) None of the above
F) B) and C)

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Question 33

Multiple Choice

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Rick finds a great Internet deal on an all-inclusive vacation rental in the Bahamas for $1,200 and immediately pays a $1,000 nonrefundable deposit to reserve the trip. He later learns that the dates for the trip are right in the middle of hurricane season, when the weather is likely to be gloomy and potentially dangerous. Rick decides he cannot waste the $1,000 he has already paid and takes the trip anyway. While sitting in the rain, miserable, Rick realizes that:

In economics, we assume a rational person will choose to perform an activity if the:

How does the concept of time inconsistency explain procrastination?

The concept of time inconsistency explains:

Jake brings his video game console home over winter break and leaves it there, thinking he will study more during the spring semester without it around. Jake is:

Elijah has set up a budget for each month. He allows himself $300 for food, $200 for bills, $100 for transportation, and $200 for entertainment. By the third week of the month, Elijah has spent nearly his entire $300 food budget, but has $100 remaining in his entertainment budget. Elijah spends his last few food dollars on rice and beans, the only thing he can afford with his remaining food money, even though he hates rice and beans. Elijah's behavior is an example of:

Bill attends a local basketball game. The teams are very unbalanced, the play is bad, and the score quickly reaches 36-2. At halftime, Bill realizes he's having no fun, so he leaves the game and goes home. Bill's behavior is not determined by:

Kyohei wants to buy a new guitar that costs $500. He has the money available in his savings account, but he is considering charging the purchase to a credit card with an annual interest rate of 10 percent. If he charges the $600 to his credit card, he would pay off the balance in full in one year. The annual interest rate in his savings account is 3 percent. What is Kyohei's opportunity cost of purchasing the guitar using his credit card?

When we say that money is fungible, we mean that a dollar spent from your savings account is:

Rick finds a great Internet deal on an all-inclusive vacation rental in the Bahamas for $1,200 and immediately pays a $1,000 nonrefundable deposit to reserve the trip. He later learns that the dates for the trip are right in the middle of hurricane season, when the weather is likely to be gloomy and potentially dangerous weather. Rick decides he cannot waste the $1,000 he already paid and takes the trip anyway. While sitting in the rain, miserable, Rick realizes he should have:

Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunk in the middle. Jason thinks about all the time he invested in making the cake and decides to frost and eat it anyway, even though it tastes pretty terrible. Jason's decision to decorate and eat the cake is an example of:

Which of the following is an example of irrationally considering sunk costs when making a decision?

Jason spends all afternoon baking a cake. When it comes out of the oven, it's burnt and sunken in the middle, and Jason considers whether or not he should throw it away. If Jason were rational, he would compare the _____, which is _____, to the benefits of eating a ruined cake.

Which of the following is not a fungible commodity?

In economics, we assume rational decisions are made when individuals weigh the:

Jun complains that he never has enough time to finish all the homework he's assigned. His roommate tells Jun to quiet down because the first of the three movies they've planned to watch that day has begun. Jun's behavior demonstrates which economic concept?

Jim recently bought a new bike and rides it every day, while his old bike sits in the garage untouched. What is Jim's opportunity cost of keeping the old bike?

Which of the following is an example of a commitment device?