Question 1

There is only one possible market portfolio-the portfolio consisting of all the risky assets in the economy.

Accepted Answer

A) True 
 B)False

Question 2

A nuclear disaster is an uninsurable risk because it would adversely affect a large number of people simultaneously.

Accepted Answer

A) True 
 B)False

Question 3

Demand and Supply for Grapes

The following tables show the demand and supply for grapes. Demand is uncertain, with D1 and D2 each occurring 50% of the time. Suppliers must base their decisions on the expected price and must sell all grapes they bring to the market at the going market price.

-If suppliers have rational expectations,what will be their expected price of grapes?

Accepted Answer

A)  $2.00 per pound. 
B)  $2.50 per pound. 
C)  $3.00 per pound. 
D)  $3.50 per pound. 
A)  $2.00 per pound. 
B)  $2.50 per pound. 
C)  $3.00 per pound. 
D)  $3.50 per pound.

Question 4

A state lottery commission offers a new millionaire game - a one in a million chance to win one million dollars.If the price of a lottery ticket is $1.50,who would buy any?

Accepted Answer

A)  Only risk-neutral individuals. 
B)  Only risk-preferring individuals. 
C)  Both risk-neutral and risk-preferring individuals. 
D)  Anyone,risk preferences would not matter. 
A)  Only risk-neutral individuals. 
B)  Only risk-preferring individuals. 
C)  Both risk-neutral and risk-preferring individuals. 
D)  Anyone,risk preferences would not matter.

Question 5

All points on a risk-neutral individual's indifference curve have the same expected value.

Accepted Answer

A) True 
 B)False

Question 6

Describe how a speculator can improve social welfare when he correctly anticipates that future demand will be higher than suppliers expect.

Accepted Answer

When a speculator anticipates that futur

Question 7

The expected value of a basket with different outcomes is

Accepted Answer

A)  the average of the values of the different outcomes. 
B)  the average of the values of different outcomes multiplied by the average of the probabilities of the outcomes. 
C)  the sum of the values of the different outcomes. 
D)  the sum of the value of each outcome multiplied by its probability. 
A)  the average of the values of the different outcomes. 
B)  the average of the values of different outcomes multiplied by the average of the probabilities of the outcomes. 
C)  the sum of the values of the different outcomes. 
D)  the sum of the value of each outcome multiplied by its probability.

Question 8

According to the law of large numbers,when a gamble is repeated many times,

Accepted Answer

A)  the average outcome increases. 
B)  the average outcome is the expected value. 
C)  the probability of each outcome changes. 
D)  insurance becomes less profitable when many people buy it. 
A)  the average outcome increases. 
B)  the average outcome is the expected value. 
C)  the probability of each outcome changes. 
D)  insurance becomes less profitable when many people buy it.

Question 9

An uninsurable risk is one

Accepted Answer

A)  where everyone wishes to bet on the same outcome. 
B)  in which information is asymmetrically distributed. 
C)  for which the odds of an event's occurrence cannot be accurately estimated. 
D)  that cannot be diversified. 
A)  where everyone wishes to bet on the same outcome. 
B)  in which information is asymmetrically distributed. 
C)  for which the odds of an event's occurrence cannot be accurately estimated. 
D)  that cannot be diversified.

Question 10

Even when econometric equations predict very well,they can be entirely useless as guides to policy.

Accepted Answer

A) True 
 B)False

Question 11

When a person is risk-preferring,his indifference curves are

Accepted Answer

A)  convex. 
B)  concave. 
C)  linear. 
D)  upward sloping. 
A)  convex. 
B)  concave. 
C)  linear. 
D)  upward sloping.

Question 12

Suppose it is February,and a speculator believes that the demand for corn in March will be higher than everyone else expects.In this situation,the speculator will

Accepted Answer

A)  bid down the price of March futures contracts. 
B)  bid down the spot price of corn. 
C)  give suppliers an incentive to sell more corn in February. 
D)  buy March futures contracts. 
A)  bid down the price of March futures contracts. 
B)  bid down the spot price of corn. 
C)  give suppliers an incentive to sell more corn in February. 
D)  buy March futures contracts.

Question 13

Consider the accompanying diagram,which shows an investor who can choose to hold the risky assets on the efficient set and/or the risk-free asset labeled R.

Accepted Answer

The answer of Consider the accompanying diagram,which shows an investor...

Question 14

Consider a potato farmer whose cost of production is $2.25 a bushel.In May,she expects that the potato when harvested in July will sell for either $2 a bushel or $3.00.She could avoid the probability of a loss by contracting to deliver the potatoes in July at $2.50.Such a contract is traded in a

Accepted Answer

A)  futures market. 
B)  spot market. 
C)  portfolio market. 
D)  diversified market. 
A)  futures market. 
B)  spot market. 
C)  portfolio market. 
D)  diversified market.

Question 15

A businessman is confronted with the following opportunity.He can invest $10,000 in a project that will either succeed wildly,fail miserably,or simply pay him back his $10,000.If wildly successful,the project will earn the businessman $110,000,but if it fails he will not get any money back.

Accepted Answer

The answer of A businessman is confronted with the following...

Question 16

Risk aversion leads individuals to underinvest from a social point of view.

Accepted Answer

A) True 
 B)False

Question 17

When a gamble is repeated many times,the average outcome is the expected value.

Accepted Answer

A) True 
 B)False

Question 18

When will speculators' actions raise social welfare?

Accepted Answer

A)  Always. 
B)  When they drive down market prices. 
C)  When their expectations prove to be correct. 
D)  When they are not risk averse. 
A)  Always. 
B)  When they drive down market prices. 
C)  When their expectations prove to be correct. 
D)  When they are not risk averse.

Question 19

In popular usage the term investor is used to refer to

Accepted Answer

A)  a speculator in futures markets. 
B)  a buyer of risky assets. 
C)  an entrepreneur who purchases machinery and equipment to expand production. 
D)  individuals whose primary source of income is from returns on financial assets. 
A)  a speculator in futures markets. 
B)  a buyer of risky assets. 
C)  an entrepreneur who purchases machinery and equipment to expand production. 
D)  individuals whose primary source of income is from returns on financial assets.

Question 20

Odds are said to be fair if they reflect the true probabilities of the various states of the world.

Accepted Answer

A) True 
 B)False

There is only one possible market portfolio-the portfolio consisting of all the risky assets in the economy.

A nuclear disaster is an uninsurable risk because it would adversely affect a large number of people simultaneously.

A state lottery commission offers a new millionaire game - a one in a million chance to win one million dollars.If the price of a lottery ticket is $1.50,who would buy any?

All points on a risk-neutral individual's indifference curve have the same expected value.

Describe how a speculator can improve social welfare when he correctly anticipates that future demand will be higher than suppliers expect.

The expected value of a basket with different outcomes is

According to the law of large numbers,when a gamble is repeated many times,

An uninsurable risk is one

Even when econometric equations predict very well,they can be entirely useless as guides to policy.

When a person is risk-preferring,his indifference curves are

Suppose it is February,and a speculator believes that the demand for corn in March will be higher than everyone else expects.In this situation,the speculator will

Consider the accompanying diagram,which shows an investor who can choose to hold the risky assets on the efficient set and/or the risk-free asset labeled R.

Consider a potato farmer whose cost of production is $2.25 a bushel.In May,she expects that the potato when harvested in July will sell for either $2 a bushel or $3.00.She could avoid the probability of a loss by contracting to deliver the potatoes in July at $2.50.Such a contract is traded in a

A businessman is confronted with the following opportunity.He can invest $10,000 in a project that will either succeed wildly,fail miserably,or simply pay him back his $10,000.If wildly successful,the project will earn the businessman $110,000,but if it fails he will not get any money back.

Risk aversion leads individuals to underinvest from a social point of view.

When a gamble is repeated many times,the average outcome is the expected value.

When will speculators' actions raise social welfare?

In popular usage the term investor is used to refer to

Odds are said to be fair if they reflect the true probabilities of the various states of the world.

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Knowledge and Information

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Allocating Goods Over Time

What Is Economics

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Exam 18: Risk and Uncertainty

There is only one possible market portfolio-the portfolio consisting of all the risky assets in the economy.

A nuclear disaster is an uninsurable risk because it would adversely affect a large number of people simultaneously.

A state lottery commission offers a new millionaire game - a one in a million chance to win one million dollars.If the price of a lottery ticket is $1.50,who would buy any?

All points on a risk-neutral individual's indifference curve have the same expected value.

Describe how a speculator can improve social welfare when he correctly anticipates that future demand will be higher than suppliers expect.

The expected value of a basket with different outcomes is

According to the law of large numbers,when a gamble is repeated many times,

An uninsurable risk is one

Even when econometric equations predict very well,they can be entirely useless as guides to policy.

When a person is risk-preferring,his indifference curves are

Suppose it is February,and a speculator believes that the demand for corn in March will be higher than everyone else expects.In this situation,the speculator will

Consider the accompanying diagram,which shows an investor who can choose to hold the risky assets on the efficient set and/or the risk-free asset labeled R.

Consider a potato farmer whose cost of production is $2.25 a bushel.In May,she expects that the potato when harvested in July will sell for either $2 a bushel or $3.00.She could avoid the probability of a loss by contracting to deliver the potatoes in July at $2.50.Such a contract is traded in a

A businessman is confronted with the following opportunity.He can invest $10,000 in a project that will either succeed wildly,fail miserably,or simply pay him back his $10,000.If wildly successful,the project will earn the businessman $110,000,but if it fails he will not get any money back.

Risk aversion leads individuals to underinvest from a social point of view.

When a gamble is repeated many times,the average outcome is the expected value.

When will speculators' actions raise social welfare?

In popular usage the term investor is used to refer to

Odds are said to be fair if they reflect the true probabilities of the various states of the world.

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Knowledge and Information

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Allocating Goods Over Time

What Is Economics

Filters