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17 August, 07:33

The fact that the price of diamonds is higher than the price of water:

A. can be explained as the outcome of a consumer optimum in consumer choice theory.

B. cannot be explained by behavioral economics or consumer choice theory.

C. is an outcome of irrational behavior in consumer choice theory.

D. can be explained only by behavioral economics but not by consumer choice theory.

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  1. 17 August, 07:45
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    Answer: D

    Explanation:

    Behavioral economics studies the impact of cognitive, psychological, cultural, emotional and social factors on individuals economic decisions. Behavioral economics is concerned with the extent of rationality of individuals, firms and governments. The study includes how market choices are made and the components that propel public choices.

    Behavioral economics is important because it gives us an idea about how the mind of humans work. The greater the supply of a particular good, the more we use the good, the less we appreciate it. There are oceans of water and we always get water easily but there are fewer diamonds embedded and hidden in rocks which are not cheap and readily available.
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