Linda committed a traffic violation that resulted in an accident. She learns first that the violation will result in a $500 fine; she then learns that she will have to pay another $500 for damage caused in the accident. According to prospect theory,
A. she will suffer as much disutility from paying for the accident damage as she does from
paying the fine.
B. she will suffer less disutility from paying for the accident damage than from paying the fine.
C. she will suffer more disutility from paying for the accident damage than from paying the
fine.
D. she will feel less disutility from paying $1,000 than she would receive positive utility from
receiving $1,000.
Answer: B
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Which of the following statements is correct?
A. Marginal social cost is the share of marginal cost caused by an activity that is paid for by the persons who carry out the activity. B. Marginal private cost is the share of marginal cost caused by an activity that is borne by persons other than those who carry out the activity. C. Marginal social cost is the sum of marginal private cost and incidental cost. D. Marginal private cost and incidental cost are one and the same.