Patti buys a new kind of cereal to try even though it's more expensive than her favorite kind. After a single bowl, Patti decides she does not care for the new cereal at all, and she:
A. forces herself to finish it, because she irrationally focuses on the sunk cost of the cereal.
B. throws it away, because she irrationally spent money on something she had no information about.
C. forces herself to finish it, because she rationally computes the cost per bowl.
D. None of these is likely to happen for the reason stated.
A. forces herself to finish it, because she irrationally focuses on the sunk cost of the cereal.
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Capital gains are taxed at a different rate than income and this reduces revenues the government receives. All else equal, what would happen if capital gains taxes were eliminated?
A) They would have to be replaced by a consumption tax. B) The government would not be able to spend money on any programs. C) Everyone would have to pay less in taxes. D) The deficit would increase because of lack of revenues.
Multiplying the dependent variable by 100 and the explanatory variable by 100,000 leaves the
A) OLS estimate of the slope the same. B) OLS estimate of the intercept the same. C) regression R2 the same. D) variance of the OLS estimators the same.
Carefully distinguish between an economic theory and economic model
Market failure is the inability of
a. buyers to interact harmoniously with sellers in the market. b. a market to establish an equilibrium price. c. buyers to place a value on the good or service. d. some unregulated markets to allocate resources efficiently.