Molly received an autographed poster of David Hasselhoff for her 21st birthday. Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged
or destroyed. Explain this inconsistency in Molly's behavior.
What will be an ideal response?
The inconsistency comes from Molly's failure to take into account nonmonetary opportunity costs. By keeping the poster instead of selling it, Molly incurs an opportunity cost of $50, so there is a $50 cost involved in keeping the poster even though she did not pay $50 for the poster. Behavioral economists believe this inconsistency is caused by the endowment effect, which is the tendency of people to be unwilling to sell something they already own even if they are offered a price greater than they would be willing to pay for the item if they did not already own it.
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A highly profitable cartel arrangement among sellers contains the seeds of its own disintegration because
A) a monopoly arrangement is more unstable than an oligopoly arrangement. B) a price maintained above each cartel member's marginal cost is an incentive to offer secret price reductions to attract additional business. C) monopoly agreements will, in the long run, reduce net revenue to zero. D) net revenue for the cartel as a whole could be increased by producing at the level where marginal revenue equals marginal cost for each cartel member. E) the cartel members will have a strong incentive to reduce quality.
Technological efficiency necessarily means producing
A) at minimum cost. B) with the highest level technology available. C) without using more inputs than necessary. D) technology itself.
When the interest rate on alternative investments rise, it becomes costly for the bondholders to retain their bonds with them
a. True b. False Indicate whether the statement is true or false
Who gets scarce resources in a market economy?
a. the government b. whoever the government decides gets them c. whoever wants them d. whoever is willing and able to pay the price