16. Imagine you bought new paint for the walls in your house. You thought it would...
16. Imagine you bought new paint for the walls in your house. You thought it would look good, but after painting two rooms with it you've decided it's not what you wanted in your house. But you've already spent money on paint, and you already started painting the house. Do you buy a new color of paint that's more to your liking, or do you stick with it and paint the rest of your house this color? What economics concept are you using when making this decision?
Homework Answers
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Ans: Here two concepts can be used:
- According to principal of sunk cost, sunk cost should not impact decisions after incurring it because it is not recoverable.
- Principle of marginalism: A rational individual takes action if its marginal benefit is greater than marginal cost.
Decision making:
- With old color, marginal cost is zero but marginal benefit is negative as the color is not liked.
- With buying new color, marginal benefit can become greater than marginal cost, given that likable color is available in the market.
Final decision: New color should be chosen as there is room to earn marginal net benefit out of it.
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