Question 1

Which of the following losses to an individual would an insurance company NOT cover?

Accepted Answer

A) The person's automobile is stolen. 
B) Fire destroys the person's home. 
C) The person's father dies. 
D) The person's country is invaded. 
A) The person's automobile is stolen. 
B) Fire destroys the person's home. 
C) The person's father dies. 
D) The person's country is invaded. D

Question 2

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

Accepted Answer

A) $0. 
B) $140. 
C) $300. 
D) It cannot be determined from the available information. 
A) $0. 
B) $140. 
C) $300. 
D) It cannot be determined from the available information. B

Question 3

For the utility function U = Wa,what values of "a" correspond to being risk averse,risk neutral,and risk loving?

Accepted Answer

0 < a < 1 implies risk averse.
a = 1 implies risk neutral.
a > 1 implies risk loving.

Question 4

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 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%,what is Lisa's gain from perfect information about weather conditions on the forthcoming Valentine's Day?

Accepted Answer

A) 50 
B) 60 
C) 90 
D) 150 
A) 50 
B) 60 
C) 90 
D) 150

Question 6

Steven currently has wealth of $10,000.He is risk averse about losing any of his wealth,but risk loving about adding to his wealth.Draw his utility function.

Accepted Answer

The answer of Steven currently has wealth of $10,000.He is...

Question 7

-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 utility is

Accepted Answer

A) a. 
B) b. 
C) c. 
D) d. 
A) a. 
B) b. 
C) c. 
D) d.

Question 8

All else held constant,as the variance of a payoff increases,the

Accepted Answer

A) expected value of the payoff increases. 
B) risk of the payoff increases. 
C) expected value of the payoff decreases. 
D) risk of the payoff decreases. 
A) expected value of the payoff increases. 
B) risk of the payoff increases. 
C) expected value of the payoff decreases. 
D) risk of the payoff decreases.

Question 9

Which of the following is a property of an S-shaped curve that corresponds to the prospect theory value function?

Accepted Answer

A) The curve passes through the reference point at the origin. 
B) Both sections of the curve are convex to the horizontal,outcome axis. 
C) The curve is symmetric with respect to gains and losses. 
D) None of the above. 
A) The curve passes through the reference point at the origin. 
B) Both sections of the curve are convex to the horizontal,outcome axis. 
C) The curve is symmetric with respect to gains and losses. 
D) None of the above.

Question 10

If Ann's utility function is U = 3W0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her Arrow-Pratt measure of risk aversion is

Accepted Answer

A) 0.5/w. 
B) 1/w. 
C) 1.5w. 
D) 3/w. 
A) 0.5/w. 
B) 1/w. 
C) 1.5w. 
D) 3/w.

Question 11

-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.To reduce the chance of theft to zero,Bob is willing to pay

Accepted Answer

A) $20. 
B) $50. 
C) $70. 
D) $80. 
A) $20. 
B) $50. 
C) $70. 
D) $80.

Question 12

Cindy's attitudes towards risk are summarized by the utility function U(w)=   
.Cindy has an initial wealth of $100.There is a 10% chance that her home will sustain flood damage next year costing her $40 in repairs.What is the most she will pay to for a full $40 of flood insurance?

Accepted Answer

Without insurance,Cindy's expe

Question 13

Expected value represents the average of all outcomes if one were to undertake the risky event many times over and over again.

Accepted Answer

A) True 
 B)False

Question 14

A risk-neutral individual will make investment decisions purely based on net present value because

Accepted Answer

A) she doesn't care about utility. 
B) utility is a linear function of wealth. 
C) she loves to take risk. 
D) net present value is always more than expected utility. 
A) she doesn't care about utility. 
B) utility is a linear function of wealth. 
C) she loves to take risk. 
D) net present value is always more than expected utility.

Question 15

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 16

-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.The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100,represents Bob's

Accepted Answer

A) risk premium. 
B) expected utility of receiving $50 with certainty. 
C) expected utility of receiving $0 50% of the time and $100 50% of the time. 
D) risk neutrality. 
A) risk premium. 
B) expected utility of receiving $50 with certainty. 
C) expected utility of receiving $0 50% of the time and $100 50% of the time. 
D) risk neutrality.

Question 17

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

Accepted Answer

A) $0 
B) $300 
C) $3,000 
D) $3,300 
A) $0 
B) $300 
C) $3,000 
D) $3,300

Question 18

Bob invests $75 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

Accepted Answer

A) risk loving. 
B) risk neutral. 
C) risk averse. 
D) irrational. 
A) risk loving. 
B) risk neutral. 
C) risk averse. 
D) irrational.

Question 19

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

Accepted Answer

A) temperature in location A has a higher variance. 
B) temperature in location B has a higher standard deviation. 
C) temperature in location A has a lower standard deviation. 
D) temperatures in both locations have the same standard deviation but different variances. 
A) temperature in location A has a higher variance. 
B) temperature in location B has a higher standard deviation. 
C) temperature in location A has a lower standard deviation. 
D) temperatures in both locations have the same standard deviation but different variances.

Question 20

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

Which of the following losses to an individual would an insurance company NOT cover?

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

For the utility function U = W^a,what values of "a" correspond to being risk averse,risk neutral,and risk loving?

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.

Steven currently has wealth of $10,000.He is risk averse about losing any of his wealth,but risk loving about adding to his wealth.Draw his utility function.

-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 utility is

All else held constant,as the variance of a payoff increases,the

Which of the following is a property of an S-shaped curve that corresponds to the prospect theory value function?

If Ann's utility function is U = 3W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her Arrow-Pratt measure of risk aversion is

-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.To reduce the chance of theft to zero,Bob is willing to pay

Cindy's attitudes towards risk are summarized by the utility function U(w)= .Cindy has an initial wealth of $100.There is a 10% chance that her home will sustain flood damage next year costing her $40 in repairs.What is the most she will pay to for a full $40 of flood insurance?

Expected value represents the average of all outcomes if one were to undertake the risky event many times over and over again.

A risk-neutral individual will make investment decisions purely based on net present value because

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

-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.The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100,represents Bob's

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

Bob invests $75 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

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?

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 losses to an individual would an insurance company NOT cover?

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

For the utility function U = Wa,what values of "a" correspond to being risk averse,risk neutral,and risk loving?

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.

Steven currently has wealth of $10,000.He is risk averse about losing any of his wealth,but risk loving about adding to his wealth.Draw his utility function.

-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 utility is

All else held constant,as the variance of a payoff increases,the

Which of the following is a property of an S-shaped curve that corresponds to the prospect theory value function?

If Ann's utility function is U = 3W0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her Arrow-Pratt measure of risk aversion is

-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.To reduce the chance of theft to zero,Bob is willing to pay

Cindy's attitudes towards risk are summarized by the utility function U(w)= .Cindy has an initial wealth of $100.There is a 10% chance that her home will sustain flood damage next year costing her $40 in repairs.What is the most she will pay to for a full $40 of flood insurance?

Expected value represents the average of all outcomes if one were to undertake the risky event many times over and over again.

A risk-neutral individual will make investment decisions purely based on net present value because

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

-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.The midpoint of the chord that runs from zero and intersects the utility function where wealth is 100,represents Bob's

People in a certain group have a 0.3% chance of dying this year.If a person in this group buys a life insurance policy for $3,300 that pays $1,000,000 to her family if she dies this year and $0 otherwise,what is the expected value of a policy to the insurance company?

Bob invests $75 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0.From this information we can conclude that Bob is

Assume the following.In location A yearly temperatures range from -30°F to 100°F and in location B yearly temperatures range from 55°F to 75°F.In both locations the average yearly temperature equals 65°F.We can conclude that

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?

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

For the utility function U = W^a,what values of "a" correspond to being risk averse,risk neutral,and risk loving?

If Ann's utility function is U = 3W^0.5,and she invests in a business which can yield $6,400 with probability 1/5,and $3600 with probability 4/5,then her Arrow-Pratt measure of risk aversion is