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13 Dec 2018

QUESTION 1

evidence of Full insurance occurs when

a.
r > pq

b.
r = pq

c.
q = (I_H - I_S)

d.
q > (I_H - I_S)

3 points

QUESTION 2

Partial and unfair insurance implies:

a.
q = (I_H - I_S)

b.
r = pq

c.
q > (I_H - I_S)

d.
q < (I_H - I_S)

e.
r < pq

3 points

QUESTION 3

Full and fair insurance implies

a.
I^'_H = E(I)

b.
I^'_S = E(I)

c.
I_H = E(I)

d.
I_S = E(I)

e.
a and b

3 points

QUESTION 4

Points on the straight line that connects I_S and I_H on the actual utility curve refer to utilities ...

1.
with full insurance

2.
with partial insurance

3.
with no insurance

4.
none of the above

3 points

QUESTION 5

Which of the following is possible?

a.
utility from full and fair insurance higher than

utility from full and unfair insurance

b.
utility from full and fair insurance lower than

utility from full and unfair insurance

c.
utility from full and fair insurance equal to

utility from full and unfair insurance

d.
a and c

3 points

QUESTION 6

Which of the following is/are possible?

a.
.

utility from full and fair insurance higher than

utility from partial and fair insurance

b.
.

utility from full and fair insurance less than

utility from partial and fair insurance

c.
.

utility from full and fair insurance equal to

utility from partial and fair insurance

d.
a and

3 points

QUESTION 7

For the insurer, which represents earnings from sick individuals?

a.
(1 - p ) x r

b.
p x r

c.
p (r - q)

d.
p (q - r)

3 points

QUESTION 8

For the insurer, which represents earnings from non-sick individuals?

a.
p x q

b.
p x r

c.
(1 - p) x r

d.
q x (I_H - I_S)

3 points

QUESTION 9

Given

p = 10%

q = $80

r = $50

calculate the expected profits of the insurance company.

a.
$22

b.
$42

c.
$32

d.
none of the above

3 points

QUESTION 10

The policy in the previous question can be described as

a.
fair insurance

b.
unfair insurance

c.
full insurance

d.
not enough information

3 points

QUESTION 11

In addition to what is given assume I_S = $800.

Assuming full insurance what is the value of I_H ?

a.
$750

b.
$880

c.
$830

d.
$872

3 points (Extra Credit)

QUESTION 12

Given the information in the last 3 problems, solve for E(I):

a.
$792

b.
$872

c.
$842

d.
none

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Elin HesselLv2

14 Dec 2018

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Question 1. Suppose that a decision maker is confronted with a choice between (i) the certainty of a $200 gain and (ii) a gamble where there is a 0.40 probability that he will gain $600 and a 0.60 probability that he will lose $20. Moreover, suppose that the utilities he attaches to -$20, $200, and $600 are -5, 10 and 25 respectively. Which course of action will he choose?

(a) .The gamble, since the expected utility from the gamble is greater than O.

(b) The gamble, since the expected utility from the gamble exceeds that from the certainty of a $200 gain.

(d) The certainty 'of a $200 gain, since the expected utility from the certainty of a $200 gain exceeds that from the gamble.

(e) He will be indifferent between the two, since both actions yield the same expected utilities.

2. An increase in monetary gain of $1 is associated with smaller and smaller increases in utility as the monetary gain increases in size. People with utility functions of this sort are (a) risk neutral

(b) risk averters

(d) utilitarians

3. An increase in monetary gain of $1 is associated with larger and larger increases in utility as the monetary gain increases in size. People with utility functions of this sort are

(a) risk neutral

(b) risk averters

(d) utilitarians

Question 4. You are trying to decide whether or not to join your friends down at the local refreshment centre. Unfortunately, you have an economics exam tomorrow. You have tried to keep up with the assignments and believe that if you do not study any more you have a 0,8 chance of getting at least a 70 on the exam, If you are lucky, however, and the lecturer does not ask any of the material you are still confused about, you will get a 90 (20% chance). However, if you stay horne and study you have a 90% chance of getting an 85 and a l0%'chance of getting a 75, If you wish to maximize the expected points on this exam, what should you do?

Question 5. Bud Weiser's Neumann-Morganstern utility function can be represented by the following equation U = 9 + M - 0.01M^2 where U is utility and M is monetary gain (in thousands of dollars), He has the opportunity to invest $20,000 in The Bourbon Cowboy Bar and Grill. He believes that there is a 2/3 chance that he will lose his entire investment and a 1/3 chance that he will gain $30,000.

(i) If he makes the investment, what is his expected utility?

(ii) Should he make the investment?

pucerat135

1. Suppose that the total utility from consuming one unit of good X is 54 utils, the total utility of two units of good X is 74 utils, and the total utility of three units of good X is 84 utils. The marginal utility of the third unit is

a.70.67 utils.

b.10 utils.

c.12.25 utils.

d.20 utils.

2. If income rises, the budget constraint

a. Moves outward away from the origin

b. Does not move

c. Moves inward toward the origin

d. Moves farther down the vertical axis

3. Economists assume that the goal of consumers is to maximize total utility.

true/false

4. The budget constraint cuts the horizontal axis at 12 units of good X and it cuts the vertical axis at 20 units of good Y. If the price of good X is $20 and the price of good Y is $12, then what does income equal?

a. $200

b. $240

c. $520

d. $280

e. not enough information to answer this question

5. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

6. Suppose you are eating buffalo wings at a local happy hour. The total utils from doing so after the fourth, fifth, sixth, and seventh wings are 30, 50, 65, 72, respectively. In this situation we have __________ marginal utility, which is generally __________ in the analysis of consumer choice.

a. diminishing; not assumed

b. increasing; assumed

c. diminishing; assumed

d. increasing; not assumed

7. Which of the following best describes an interpersonal utility comparison?

a. Usually, Smith seems a lot happier than Jones.

b. Smith gets more utility from working on his computer than Jones gets from working on his computer.

c. Smith usually eats more in a day than Jones eats in a day.

d. ones likes computers produced by Dell Computer Corporation and Smith likes computers produced by Apple Computer Inc

e. Smith got less utility from eating the 30th cookie than eating the 29th cookie, and the same holds for Jones.

8. We would expect the total utility of water to be high but its marginal utility to be low. Why?

a. Because we need water to live and there is so much of it.

b. Because we need water to live and there is very little of it.

c. Because water is a fluid and we don't need fluids to live as much as we need food

d. Because water's price is low.

9.The marginal utility curve for units 6 through 8 of good Z lies below the horizontal axis. What does this imply must be true about the total utility curve for units 6 through 8 of good Z?

a. That portion of good Zâs total utility curve must also lie below the horizontal axis.

b. That portion of good Zâs total utility curve must be upward sloping.

c. That portion of good Zâs total utility curve must be horizontal.

d. That portion of good Zâs total utility curve must be downward sloping.

10. Research presented in the text shows that people are more concerned with their absolute income position in a group than their relative income position in the group.

true/false

QUESTION 1

Assume there are two basic goods produced in a nation, consumer goods and capital goods. The production possibilities graph for these two goods is bowed out from the origin. This reason for this shape of the graph is because of:

	A.	the other-things-equal assumption.
	B.	the law of increasing opportunity costs.
	C.	diminishing marginal utility.
	D.	present choices and future possibilities.

1 points

QUESTION 2

From an economic perspective, when a student decides to attend another year of college, the student has concluded that the:

	A.	marginal costs of attending college are reduced by the availability of grants and subsidies.
	B.	marginal benefits of attending college have increased because the future is brighter.
	C.	marginal benefits of attending college are greater than the marginal costs.
	D.	marginal costs of attending college have decreased to make college affordable.

1 points

QUESTION 3

A person observes that as consumer prices fall, economic growth increases. The person concludes that fall consumer prices leads to economic growth. This conclusion would be an example of:

	A.	confusing correlation with causation.
	B.	the fallacy of composition.
	C.	trade-offs among economic goals.
	D.	the other-things-equal assumption.

1 points

QUESTION 4

The problem of unlimited wants and limited income is known as

	A.	the scientific method.
	B.	unequal wealth distribution.
	C.	normative economics.
	D.	the economizing problem.

1 points

QUESTION 5

A point outside the production possibilities curve is:

	A.	unattainable without economic growth.
	B.	attainable and the economy is efficient.
	C.	unattainable without inflation.
	D.	attainable, but the economy is inefficient.

1 points

QUESTION 6

Which one of the following would be an example of loaded terminology?

	A.	market forces
	B.	tentative hypothesis
	C.	entrepreneurial functions
	D.	creeping socialism

1 points

QUESTION 7

Suppose there are two economies, Alpha and Beta, both of which have the same production possibilities curves. If Beta devotes more resources to produce investment goods than consumer goods as compared to Alpha, then in the future:

	A.	Alpha will not be able to achieve full employment.
	B.	Beta will not be able to achieve full employment.
	C.	Alpha will experience greater economic growth than Beta.
	D.	Beta will experience greater economic growth than Alpha.

1 points

QUESTION 8

Macroeconomics, as opposed to microeconomics, is concerned with

	A.	individual businesses.
	B.	new computer technology.
	C.	the stock market.
	D.	the economy as a whole.

1 points

QUESTION 9

Which one of the following is an example of a positive economic statement?

	A.	The size of the Federal government should be reduced.
	B.	Midwest states affected by drought should be given more federal disaster aid.
	C.	Education and income are highly correlated.
	D.	The minimum wage for workers should be raised to help low-income workers.

1 points

QUESTION 10

Economics is primarily concerned with

	A.	interactions between the government and market participants.
	B.	how scarce resources are used.
	C.	the production and distribution of capital goods.
	D.	how income is divided among individuals.

1 points

QUESTION 11

The production possibilities table below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy.

A B C D E

Guns 0 4 7 9 10

Butter 4 3 2 1 0

If the economy is producing at alternative C, what is the opportunity cost of producing another unit of butter?

	A.	3 units of guns.
	B.	1 units of guns.
	C.	2 units of guns.
	D.	4 units of guns.

1 points

QUESTION 12

Assume that a consumer can buy only two goods X and Y, and has an income of $120. The price of X is $10 and the price of Y is $20. If the consumer spends all of her money on X and Y, which of the following would be a possible combination:

	A.	4X and 2Y
	B.	5X and 3Y
	C.	6X and 3Y
	D.	8X and 1Y

1 points

QUESTION 13

In the production possibilities model of an economy, when there is full employment of resources

		a nation will be operating at an interior point within its production possibilities curve.
		a nation will be operating on the production possibilities curve.
		the production possibilities curve will shift outward to the right.
		the production possibilies curve will shift inward to the left.

1 points

QUESTION 14

In economics the concept that there is "no free lunch" means

	A.	scarce resources were used to produce these "free" goods so there is an opportunity cost to producing them.
	B.	consumers are irrational when they ask for a free lunch unless they can make the case that the free lunch benefits business.
	C.	the marginal cost of the "lunch" is greater than the marginal benefit.
	D.	businesses could not make a profit if they gave away free goods to consumers.

1 points

QUESTION 15

Assume that a consumer can only purchase two goods with her income. A straight-line budget constraint indicates that the opportunity cost of obtaining an additional unit of one good is:

	A.	negative.
	B.	constant.
	C.	increasing.
	D.	decreasing.

carmineferret43

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	a.	q = (I_H - I_S)
	b.	r = pq
	c.	q > (I_H - I_S)
	d.	q < (I_H - I_S)
	e.	r < pq

	a.	I^'_H = E(I)
	b.	I^'_S = E(I)
	c.	I_H = E(I)
	d.	I_S = E(I)
	e.	a and b

	1.	with full insurance
	2.	with partial insurance
	3.	with no insurance
	4.	none of the above

	a.	utility from full and fair insurance higher than utility from full and unfair insurance
	b.	utility from full and fair insurance lower than utility from full and unfair insurance
	c.	utility from full and fair insurance equal to utility from full and unfair insurance
	d.	a and c

	a.	. utility from full and fair insurance higher than utility from partial and fair insurance
	b.	. utility from full and fair insurance less than utility from partial and fair insurance
	c.	. utility from full and fair insurance equal to utility from partial and fair insurance
	d.	a and

	a.	fair insurance
	b.	unfair insurance
	c.	full insurance
	d.	not enough information