Question 1

Risk-averse individuals make risky investments

Accepted Answer

A)  never. 
B)  when the investment's expected return exceeds the return on a non-risky investment. 
C)  when the investment's expected return adequately compensates for the risk. 
D)  only when they are feeling irrational. 
A)  never. 
B)  when the investment's expected return exceeds the return on a non-risky investment. 
C)  when the investment's expected return adequately compensates for the risk. 
D)  only when they are feeling irrational.

Question 2

Behavioral economics under uncertainty documents that

Accepted Answer

A)  people's behavior often differs from what standard expected utility theory predicts. 
B)  people's behavior can change with their circumstances. 
C)  people might put considerable weight on certain outcomes. 
D)  All of the above. 
A)  people's behavior often differs from what standard expected utility theory predicts. 
B)  people's behavior can change with their circumstances. 
C)  people might put considerable weight on certain outcomes. 
D)  All of the above.

Question 3

The ability of diversification to reduce risk

Accepted Answer

A)  is greater the more negatively correlated the two events are. 
B)  is greater the more positively correlated the two events are. 
C)  is greater the more uncorrelated the two events are. 
D)  is greater the more risk averse the individual is. 
A)  is greater the more negatively correlated the two events are. 
B)  is greater the more positively correlated the two events are. 
C)  is greater the more uncorrelated the two events are. 
D)  is greater the more risk averse the individual is.

Question 4

Suppose a patent applicant approaches an insurance company and seeks to purchase an insurance policy that her patent will not net $1m in the next three years.The insurance company

Accepted Answer

A)  will sell her an insurance policy because the proposal entails uncertainty not risk. 
B)  will sell her an insurance policy because the proposal entails risk not uncertainty. 
C)  will not sell her an insurance policy because the proposal entails uncertainty not risk. 
D)  will not sell her an insurance policy because the proposal entails risk not uncertainty. 
A)  will sell her an insurance policy because the proposal entails uncertainty not risk. 
B)  will sell her an insurance policy because the proposal entails risk not uncertainty. 
C)  will not sell her an insurance policy because the proposal entails uncertainty not risk. 
D)  will not sell her an insurance policy because the proposal entails risk not uncertainty.

Question 5

Without usury laws,banks will

Accepted Answer

A)  charge very high interest rates to all borrowers. 
B)  charge higher interest rates to riskier borrowers than to safer borrowers. 
C)  charge very low interest rates to all borrowers. 
D)  face no demand for loans. 
A)  charge very high interest rates to all borrowers. 
B)  charge higher interest rates to riskier borrowers than to safer borrowers. 
C)  charge very low interest rates to all borrowers. 
D)  face no demand for loans.

Question 6

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

Accepted Answer

This person is risk preferring

Question 7

Buying a diversified mutual stock fund allows you to

Accepted Answer

A)  completely avoid all types of risk. 
B)  avoid only random, unsystematic risk. 
C)  avoid only systematic risk. 
D)  avoid risk only when all the stock prices are perfectly correlated. 
A)  completely avoid all types of risk. 
B)  avoid only random, unsystematic risk. 
C)  avoid only systematic risk. 
D)  avoid risk only when all the stock prices are perfectly correlated.

Question 8

The Friedman-Savage utility function can explain why

Accepted Answer

A)  people buy automobile insurance. 
B)  somebody becomes addicted to gambling. 
C)  people become more risk averse as their wealth increases. 
D)  people place small bets to have a chance at winning a large amount. 
A)  people buy automobile insurance. 
B)  somebody becomes addicted to gambling. 
C)  people become more risk averse as their wealth increases. 
D)  people place small bets to have a chance at winning a large amount.

Question 9

-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's expected wealth is

Accepted Answer

A)  $0. 
B)  $50. 
C)  $75. 
D)  $100. 
A)  $0. 
B)  $50. 
C)  $75. 
D)  $100.

Question 10

-The above figure shows Bob's utility function,which is

Accepted Answer

A)  concave. 
B)  convex. 
C)  linear. 
D)  L-shaped. 
A)  concave. 
B)  convex. 
C)  linear. 
D)  L-shaped.

Question 11

A rational person maximizes

Accepted Answer

A)  risk. 
B)  return. 
C)  expected utility. 
D)  return variance. 
A)  risk. 
B)  return. 
C)  expected utility. 
D)  return variance.

Question 12

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Accepted Answer

A)  mutually exclusive. 
B)  exhaustive. 
C)  Both A and B. 
D)  None of the above. 
A)  mutually exclusive. 
B)  exhaustive. 
C)  Both A and B. 
D)  None of the above.

Risk-averse individuals make risky investments

Behavioral economics under uncertainty documents that

The ability of diversification to reduce risk

Suppose a patent applicant approaches an insurance company and seeks to purchase an insurance policy that her patent will not net $1m in the next three years.The insurance company

Without usury laws,banks will

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

Buying a diversified mutual stock fund allows you to

The Friedman-Savage utility function can explain why

-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's expected wealth is

-The above figure shows Bob's utility function,which is

A rational person maximizes

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 17: Uncertainty

Risk-averse individuals make risky investments

Behavioral economics under uncertainty documents that

The ability of diversification to reduce risk

Suppose a patent applicant approaches an insurance company and seeks to purchase an insurance policy that her patent will not net $1m in the next three years.The insurance company

Without usury laws,banks will

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100,and 80% of the time returns $50? Explain.

Buying a diversified mutual stock fund allows you to

The Friedman-Savage utility function can explain why

-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's expected wealth is

-The above figure shows Bob's utility function,which is

A rational person maximizes

You draw colored balls out of a bag.You draw a red ball 30% of the time and a blue ball 70% of the time.For each draw,the blue outcome and the red outcome are

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters