Suppose a perfectly competitive firm, which is initially in long-run equilibrium experiences a decrease in the wages it must pay its employees. In the short run, which of the following will occur?

a. ATC will shift down and MC will shift up, causing the firm to earn a positive economic profit.
b. ATC will shift up and MC will shift down, causing the firm to incur a loss.
c. ATC and MC will shift up, causing the firm to incur a loss.
d. ATC and MC will shift down, causing the firm to earn a positive economic profit.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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