Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)  Compared to stocks, bonds have a higher return. 
B)  Compared to stocks, bond returns have a higher standard deviation. 
C)  Compared to bonds, stock returns have a lower standard deviation. 
D)  Compared to bonds, stock returns have a higher standard deviation. 
A)  Compared to stocks, bonds have a higher return. 
B)  Compared to stocks, bond returns have a higher standard deviation. 
C)  Compared to bonds, stock returns have a lower standard deviation. 
D)  Compared to bonds, stock returns have a higher standard deviation. D

Question 2

Usury laws result in banks making less credit available to lower-income households because

Accepted Answer

A)  higher-income households will pay a higher interest rate than lower-income households. 
B)  loans made to higher-income households have no risk. 
C)  loans to lower-income households are riskier than loans to higher-income households. 
D)  the regulated interest rate does not adequately compensate the bank for the risk of the loan to a lower-income household. 
A)  higher-income households will pay a higher interest rate than lower-income households. 
B)  loans made to higher-income households have no risk. 
C)  loans to lower-income households are riskier than loans to higher-income households. 
D)  the regulated interest rate does not adequately compensate the bank for the risk of the loan to a lower-income household. D

Question 3

Which of the following games involving the roll of a single die is a fair bet?

Accepted Answer

A)  Bet $1 and receive $1 if 3 or 4 comes up. 
B)  Bet $1 and receive $1 if 3, 4, or 5 comes up. 
C)  Bet $1 and receive $4 if six comes up. 
D)  None of the bets is a fair bet. 
A)  Bet $1 and receive $1 if 3 or 4 comes up. 
B)  Bet $1 and receive $1 if 3, 4, or 5 comes up. 
C)  Bet $1 and receive $4 if six comes up. 
D)  None of the bets is a fair bet. B

Question 4

16.2 Attitudes Toward Risk
  
-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Over and above the price of fair insurance,what is the risk premium Bob would pay to eliminate the chance of theft?

Accepted Answer

A)  $0 
B)  $20 
C)  $30 
D)  $50 
A)  $0 
B)  $20 
C)  $30 
D)  $50

Question 5

Lisa runs a local flower shop,if it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.The chance of rain is 30%,the standard deviation of the profits Lisa could earn on Valentine's Day is

Accepted Answer

A)  198.17. 
B)  135.61. 
C)  432.43. 
D)  290. 
A)  198.17. 
B)  135.61. 
C)  432.43. 
D)  290.

Question 6

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

Accepted Answer

Risk that cannot be diversified away aff

Question 7

Although he is very poor,Al plays the million-dollar lottery every day because he is certain that one day he will win.Al makes this calculation based upon

Accepted Answer

A)  the frequency of past outcomes. 
B)  subjective probability. 
C)  knowledge of all possible outcomes. 
D)  tossing a coin. 
A)  the frequency of past outcomes. 
B)  subjective probability. 
C)  knowledge of all possible outcomes. 
D)  tossing a coin.

Question 8

A lottery game pays $500 with .001 probability and $0 otherwise.The variance of the payout is

Accepted Answer

A)  15.8. 
B)  249.50. 
C)  249.75. 
D)  499. 
A)  15.8. 
B)  249.50. 
C)  249.75. 
D)  499.

Question 9

For the following, please answer "True" or "False" and explain why.
-If a person willingly plays an unfair game that is not in his favor,he is risk loving.

Accepted Answer

A) True 
 B)False

Question 10

On any given day,a salesman can earn $0 with a 40% probability,$100 with a 40% probability,or $300 with a 20% probability.His expected earnings equal

Accepted Answer

A)  $0. 
B)  $100 because that is the most likely outcome. 
C)  $100 because that is what he will earn on average. 
D)  $200 because that is what he will earn on average. 
A)  $0. 
B)  $100 because that is the most likely outcome. 
C)  $100 because that is what he will earn on average. 
D)  $200 because that is what he will earn on average.

Question 11

If Ann's utility function is U = W⁰.⁵,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

Accepted Answer

A)  $1280. 
B)  $2880. 
C)  $4160. 
D)  $5840. 
A)  $1280. 
B)  $2880. 
C)  $4160. 
D)  $5840.

Question 12

-The above figure shows Bob's utility function.He currently has $50 and is considering an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.Bob will make the investment

Accepted Answer

A)  if it costs less than $50. 
B)  if it costs less than $30. 
C)  if it is a fair game. 
D)  under no circumstances. 
A)  if it costs less than $50. 
B)  if it costs less than $30. 
C)  if it is a fair game. 
D)  under no circumstances.

Question 13

Lisa runs a local flower shop.If it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.What is Lisa's expected profit on Valentine's Day if she only knows that there is a 30% chance of rain that day?

Accepted Answer

A)  $350 
B)  $290 
C)  $200 
D)  $150 
A)  $350 
B)  $290 
C)  $200 
D)  $150

Question 14

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Accepted Answer

A)  $0. 
B)  $100. 
C)  $150. 
D)  $170. 
A)  $0. 
B)  $100. 
C)  $150. 
D)  $170.

Question 15

Which of the following helps to reduce risk?

Accepted Answer

A)  abstain from risk taking 
B)  obtain more information 
C)  diversify 
D)  All of the above. 
A)  abstain from risk taking 
B)  obtain more information 
C)  diversify 
D)  All of the above.

Question 16

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

Accepted Answer

E(X)= (0 ∗ .2)+ (100 ∗ .4)+ (300 ∗ .2)=

Question 17

Sarah buys little stuffed animals for $5 each.They come in different varieties.If the producer stops making (retires)a certain variety,a stuffed animal of that variety will be worth $100; otherwise it is worth $0.There is 25% chance that any variety will be retired.For the purchase of an individual animal,what is the value to Sarah of knowing ahead of time whether or not that variety will be retired?

Accepted Answer

If Sarah did not know whether a variety

Question 18

Match between columns
                        Premises: A risk-loving person will accept any gamble.
A risk neutral person is indifferent to a gamble and the expected value of the gamble.

A risk-averse person will never accept a gamble.

Accepted Answer

The Answer of False and True is...

Question 19

16.2 Attitudes Toward Risk
  
-The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Accepted Answer

A)  his utility function is concave. 
B)  he has diminishing marginal utility of wealth. 
C)  he is willing to pay a premium to avoid a risky situation. 
D)  All of the above. 
A)  his utility function is concave. 
B)  he has diminishing marginal utility of wealth. 
C)  he is willing to pay a premium to avoid a risky situation. 
D)  All of the above.

Question 20

Empirical evidence suggests that usury laws

Accepted Answer

A)  help poor consumers by lowering the interest rate they pay. 
B)  hurt poor consumers by limiting their ability to borrow. 
C)  keep interest rates low. 
D)  limit the amount borrowed by wealthier consumers. 
A)  help poor consumers by lowering the interest rate they pay. 
B)  hurt poor consumers by limiting their ability to borrow. 
C)  keep interest rates low. 
D)  limit the amount borrowed by wealthier consumers.

Which of the following statements is CORRECT?

Usury laws result in banks making less credit available to lower-income households because

Which of the following games involving the roll of a single die is a fair bet?

16.2 Attitudes Toward Risk -The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Over and above the price of fair insurance,what is the risk premium Bob would pay to eliminate the chance of theft?

Lisa runs a local flower shop,if it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.The chance of rain is 30%,the standard deviation of the profits Lisa could earn on Valentine's Day is

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

Although he is very poor,Al plays the million-dollar lottery every day because he is certain that one day he will win.Al makes this calculation based upon

A lottery game pays $500 with .001 probability and $0 otherwise.The variance of the payout is

For the following, please answer "True" or "False" and explain why. -If a person willingly plays an unfair game that is not in his favor,he is risk loving.

On any given day,a salesman can earn $0 with a 40% probability,$100 with a 40% probability,or $300 with a 20% probability.His expected earnings equal

If Ann's utility function is U = W⁰.⁵,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

-The above figure shows Bob's utility function.He currently has $50 and is considering an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.Bob will make the investment

Lisa runs a local flower shop.If it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.What is Lisa's expected profit on Valentine's Day if she only knows that there is a 30% chance of rain that day?

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Which of the following helps to reduce risk?

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

16.2 Attitudes Toward Risk -The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Empirical evidence suggests that usury laws

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 16: Uncertainty

Which of the following statements is CORRECT?

Usury laws result in banks making less credit available to lower-income households because

Which of the following games involving the roll of a single die is a fair bet?

16.2 Attitudes Toward Risk -The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Over and above the price of fair insurance,what is the risk premium Bob would pay to eliminate the chance of theft?

Lisa runs a local flower shop,if it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.The chance of rain is 30%,the standard deviation of the profits Lisa could earn on Valentine's Day is

Distinguish between risk that can be reduced through diversification and risk that cannot be reduced through diversification.

Although he is very poor,Al plays the million-dollar lottery every day because he is certain that one day he will win.Al makes this calculation based upon

A lottery game pays $500 with .001 probability and $0 otherwise.The variance of the payout is

For the following, please answer "True" or "False" and explain why. -If a person willingly plays an unfair game that is not in his favor,he is risk loving.

On any given day,a salesman can earn $0 with a 40% probability,$100 with a 40% probability,or $300 with a 20% probability.His expected earnings equal

If Ann's utility function is U = W⁰.⁵,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her expected wealth is

-The above figure shows Bob's utility function.He currently has $50 and is considering an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.Bob will make the investment

Lisa runs a local flower shop.If it rains on Valentine's Day and she opens the shop,she will lose $200.If it does not rain on Valentine's Day,she will earn $500 dollars as profits.What is Lisa's expected profit on Valentine's Day if she only knows that there is a 30% chance of rain that day?

On any given day,a salesman can earn $0 with a 30% probability,$100 with a 20% probability,or $300 with a 50% probability.His expected earnings equal

Which of the following helps to reduce risk?

On any given day,a salesman can earn $0 with a 20% probability,$100 with a 40% probability,or $300 with a 20% probability.Calculate the expected value and variance of his earnings,and interpret.

16.2 Attitudes Toward Risk -The above figure shows Bob's utility function.He currently has $100 of wealth,but there is a 50% chance that it could all be stolen.Bob is risk averse because

Empirical evidence suggests that usury laws

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Costs

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters