Exam 21: Consumer Utility and Optimization

(Figure: Coffee and Comic Books) Refer to the figure. Aconsumer has $2 to spend on comic books (priced at $1 percomic book) and coffee (priced at $1 per cup). To maximizeutility, should this consumer buy two cups of coffee?

If stock prices rise at a very fast rate, this may be indicative of:

Paying children money to do family chores:

A risky portfolio is one that: I. is poorly diversified II.has a volatile stock in a basket of 200 stocks III. has a positive correlation between most of its stock prices.

(Figure: Budget Constraint) Refer to the figure. If the price ofsneakers rises, then the budget constraint in the figure will:

Suppose the benefit of owning a painting, in terms of yourpersonal enjoyment, is worth 5 percent of the value of thepainting. If the expected rate of return on stocks is 7 percent,then the painting should grow in value by _________ per year.

The textbook uses the "no free lunch principle" in financialinvestment to indicate that:

Which of the following statements is TRUE? I. For every transaction in the stock market there is a buyerand a seller II.At any point in time, the price of a stock tends to reflect allavailable public information about the company's futureprospects III. A revolutionary cancer treatment pill will be released nextyear. An investor will get rich by buying stock in that companynow.

Which of the following may make weak incentivesmutually profitable for both owner and sales staff of anauto dealer?

situations where worker productivity largely dependson factors outside the worker's control (e.g., the state ofthe economy):

The minimum wage is a type of piece rate.

Piece rate pay works better when:

For a person holding a mutual fund, compounding the returnson the fund leads to a higher total return in the future thanwithout compounding.

Piece rates do not work well when:

In a stock market, a riskier stock typically has:

Which of the following individuals is using information outsidethe efficient markets hypothesis? Someone who:

Warren Buffett will likely continue to beat the market, as hehas done for the past few decades.

Consumers maximize their utility when:

Tournaments work best when the risk from the outsideenvironment is ________ the ability risk.

A real return of 10 percent per year means that a $10,000investment will grow to $20,000 in: