In the face of rising costs, some firms reduce the quality of the goods they produce rather than maintain quality and increase prices. How would behavioral economics explain this strategy?
A. People have an aversion to losses, and consumers are more likely to feel the loss of a
price increase than a quality reduction.
B. Consumers are more tolerant of diminished quality because diminishing marginal utility
causes people to get rid of goods sooner than in the past.
C. Firms are myopic in their decision making, with little regard for future profitability.
D. The availability heuristic will cause people to buy whatever is offered, regardless of the
quality.
Answer: A
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Explain the structure of the circular flow model
What will be an ideal response?
To reduce structural unemployment, a nation should focus on:
a. Changing the exchange rate so more can be exported and less imported. b. Improving educational opportunities and job training c. Increasing government spending for the military. d. Cutting income taxes. e. All the above.
When a positive externality exists,
A. external benefits are necessarily greater than private benefits. B. social benefits are greater than private benefits. C. social benefits are less than private benefits. D. social benefits equal private benefits. E. none of the above
Robbery reduces economic efficiency by
a. creating voluntary exchanges b. decreasing government spending c. increasing unemployment d. creating involuntary exchanges e. lowering the number of potential Pareto improvements