Question

If people are given an item, the minimum price they'd sell it for is much larger than what they'd be willing to pay for it if they had not been given the item in the first place. this is an example of: select an answer and submit. for keyboard navigation, use the up/down arrow keys to select an answer.

a the certainty effect.
b the endowment effect.
c the diminishing marginal utility of items.
d honoring sunk costs.
e time-inconsistent discounting.

Answer 1

The correct answer is option b. the endowment effect. The endowment effect refers to the tendency for individuals to assign a higher value to an item they possess than to the same item when they don't possess it.

Step-by-step explanation:

The correct answer is option b. the endowment effect.

The endowment effect refers to the tendency for individuals to assign a higher value to an item they possess than to the same item when they don't possess it.

In other words, if people are given an item, they will typically require a higher price to sell it compared to the price they would be willing to pay for the item if they had not been given it. This effect is considered a form of cognitive bias and has been observed in numerous studies.

The correct answer is option b the endowment effect.

This psychological occurrence is where people value something they own higher than if they didn't own it. When a person is given an item, they often feel a sense of ownership that leads them to value it more than if they would need to purchase it, hence setting a higher selling price than what they are willing to pay if they had not owned the item.

It is distinct from other economic principles like the substitution effect, the income effect, or the concept of sunk costs, which also involve how prices and costs influence consumer behavior but in different contexts.