Which of the following is a characteristic of 'Reference-Dependent Preferences'?
A. Reference points are irrelevant
B. Only absolute levels of wealth matter
C. Outcomes are evaluated relative to a reference point, generating gains and losses
D. Only final wealth enters utility
Answer: Option C
Solution (By JKSSB Mock Tests)
Reference-dependent preferences, central to prospect theory, evaluate outcomes as gains or losses relative to a reference point rather than in terms of final absolute wealth levels.
Explanation:
Say's Law of Markets, associated with classical economics, states that 'supply creates its own demand', implying that general overproduction is impossible.
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