According to the "endowment effect:"
A. people are willing to pay more for things they don't own than they would have to receive to
give up something they already have.
B. people feel gains and losses with equal intensity.
C. people assign higher values to things they own than things they don't.
D. the intensity of feelings from gains and losses depends on how much wealth one
possesses.
Answer: C
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Assume that the term structure effect and the default-risk premium remain unchanged and that households and firms have adaptive expectations
At the beginning of 2013, a bank is offering car loans at a nominal interest rate of 7% and the expected rate of inflation is 2 %, and at the beginning of 2014, the bank decreases the nominal interest rate to 5%. The real interest rate at the beginning of 2014 is A) 2%. B) 3%. C) 5%. D) This cannot be determined without being given the expected inflation rate for 2014.
The real-balance effect implies that when
A. the price level increases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases. B. the price level increases, the value of money balances held by individuals, firms, government, and foreigners increases and spending increases. C. the price level decreases, the value of money balances held by individuals, firms, government, and foreigners decreases and spending decreases. D. the price level decreases, the value of money balances held by individuals, firms, government, and foreigners increases and spending decreases.