2 QUESTION 2Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week shediscovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the newpair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid somuch for them." Sara's behaviorOA. is rational: she should not discard a valuable item.B. is rational because the more you pay for an item the more valuable it is.C. ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should givethem away or not.D. supports the endowment effect which states that ownership of an item makes it more valuable.

According to the endowment effect, a phenomenon in behavioral economics, people regard things more…

QUESTION 2 Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so much for them." Sara's behavior A. is rational: she should not discard a valuable item. B. is rational because the more you pay for an item the more valuable it is.

QUESTION 2 Sara finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Sara went back to wearing her old pair and stashed away the new pair. When asked by her boss, Emin why does she not simply give away the new pair, she said: "But I paid so much for them." Sara's behavior A. is rational: she should not discard a valuable item. B. is rational because the more you pay for an item the more valuable it is.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below. Assume the bar owner has the right to hire as many bands as she likes. Iftransaction costs were $90, split between the bar owner and the tenants, how manybands would play? What would social welfare be? A. Three bands would play and social welfare would be ‐100.B. Two bands would play and social welfare would be 75.C. Two bands would play and social welfare would be ‐15.D. No bands would play and social welfare would be 0.E. Three bands would play and social welfare would be ‐190
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