Question 1

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

Accepted Answer

A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate. 
A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate.

Question 2

Show and explain why substituting an unrestricted cash transfer for an excise subsidy of equal cost to the government must lead to less consumption of the subsidized good and more consumption of other goods.

Accepted Answer

Let the initial budget line be AZ.An exc

Question 3

Use the following figure to answer the questions : Figure : 5-5 shows a family's preferences toward schooling,before and after a fixed-quantity subsidy.
 
-Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.The fixed-quantity subsidy reduces schooling by _____.

Accepted Answer

A) G0 
B) B0 
C) BG 
D) H0 
A) G0 
B) B0 
C) BG 
D) H0

Question 4

For a risk-averse individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

Accepted Answer

A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) is always negative. 
A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) is always negative.

Question 5

Answer the following:
a)How is insurance similar to an individual's diversified portfolio?
b)Explain why holding a diverse portfolio of assets is important to minimizing the risk of an investment portfolio.
c)Given the importance of diversifying all of your financial assets,is it a good idea to own stock in the company for which you work,even if you own stock in other sectors? Explain why or why not.
d)A home is the most valuable asset for a majority of U.S.residents.Why do we not see more diversification in real estate ownership against loss of value due to market fluctuations?

Accepted Answer

a)Insurance companies assume risks of di

Question 6

Fun-day,a theme park,recently changed its ticket pricing plan from Plan 1 to Plan 2.How would you explain the sudden increase in the number of people at the theme park?

Accepted Answer

Assume that there are two adults with bu

Question 7

Which of the following statements is true?

Accepted Answer

A) Consumers are better off with a fixed-quantity subsidy than an equal-cost voucher system. 
B) Voucher systems will not increase the quantity consumed of the subsidized good. 
C) With a fixed-quantity subsidy consumers will consume more of other goods. 
D) Fixed-quantity subsidies and voucher systems can both place the consumer on a higher indifference curve. 
A) Consumers are better off with a fixed-quantity subsidy than an equal-cost voucher system. 
B) Voucher systems will not increase the quantity consumed of the subsidized good. 
C) With a fixed-quantity subsidy consumers will consume more of other goods. 
D) Fixed-quantity subsidies and voucher systems can both place the consumer on a higher indifference curve.

Question 8

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Accepted Answer

A) excise subsidy 
B) fixed-quantity subsidy 
C) voucher program 
D) lump-sum transfer 
A) excise subsidy 
B) fixed-quantity subsidy 
C) voucher program 
D) lump-sum transfer

Question 9

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.

Accepted Answer

A) 15 
B) 12.5 
C) 17.5 
D) 20 
A) 15 
B) 12.5 
C) 17.5 
D) 20

Question 10

Use the following figure to answer the questions : Figure : 5-5 shows a family's preferences toward schooling,before and after a fixed-quantity subsidy.
 
-Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.Suppose the government offers education vouchers of value $B0 instead of a fixed-quantity subsidy.The budget line will become _____.

Accepted Answer

A) MATN 
B) AS 
C) MN 
D) MAS 
A) MATN 
B) AS 
C) MN 
D) MAS

Question 11

Assume an indifference map with other goods on the vertical axis and health on the horizontal axis.The government provides families with $400 vouchers that can be redeemed for healthcare services at any hospital,public or private.The budget line for a family that avails this voucher scheme will:

Accepted Answer

A) be negatively sloped. 
B) be positively sloped up to $400 and then have a zero slope. 
C) have a zero slope up to $400 and then have a negative slope. 
D) be a straight line with an infinite slope. 
A) be negatively sloped. 
B) be positively sloped up to $400 and then have a zero slope. 
C) have a zero slope up to $400 and then have a negative slope. 
D) be a straight line with an infinite slope.

Question 12

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

Accepted Answer

A) $5,000 
B) More than $10,000 
C) No more than $5,000 
D) Either more or less than $10,000 depending on whether housing is a normal or inferior good for the individual 
A) $5,000 
B) More than $10,000 
C) No more than $5,000 
D) Either more or less than $10,000 depending on whether housing is a normal or inferior good for the individual

Question 13

For a risk-loving individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

Accepted Answer

A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate. 
A) increases at an increasing rate. 
B) has a constant slope. 
C) increases at a decreasing rate. 
D) decreases at an increasing rate.

Question 14

In which of the following cases can a subsidy possibly harm its recipients?

Accepted Answer

A) When consumption of the subsidized good is mandatory 
B) When the subsidy is fully funded by the government 
C) When the subsidy is targeted at low-income groups 
D) When the good that is subsidized is a luxury good 
A) When consumption of the subsidized good is mandatory 
B) When the subsidy is fully funded by the government 
C) When the subsidy is targeted at low-income groups 
D) When the good that is subsidized is a luxury good

Question 15

When comparing T-bills and stocks,a risk-averse investor may choose to invest in T-bills although stocks give higher average returns because _____.

Accepted Answer

A) investing in stocks involves a long term commitment 
B) investing in stocks involves a higher degree of risk 
C) stocks are less liquid than T-bills 
D) stocks cannot be bought and sold in a secondary market 
A) investing in stocks involves a long term commitment 
B) investing in stocks involves a higher degree of risk 
C) stocks are less liquid than T-bills 
D) stocks cannot be bought and sold in a secondary market

Question 16

Use the following figure to answer the questions : Figure : 5-5 shows a family's preferences toward schooling,before and after a fixed-quantity subsidy.
 
-Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.Public schooling provided in the amount of B0 causes the family to consume _____ of other goods.

Accepted Answer

A) MC 
B) MH 
C) M0 
D) CH 
A) MC 
B) MH 
C) M0 
D) CH

Question 17

A subsidy can actually cause the consumption of subsidized goods to fall if:

Accepted Answer

A) the consumer has concave indifference curves. 
B) the government prohibits resale of the good. 
C) the price of other goods also falls. 
D) the subsidized quantity of the good is fixed. 
A) the consumer has concave indifference curves. 
B) the government prohibits resale of the good. 
C) the price of other goods also falls. 
D) the subsidized quantity of the good is fixed.

Question 18

An excise subsidy given on clothing will encourage consumers to purchase:

Accepted Answer

A) more clothing due to the substitution effect. 
B) less clothing due to the income effect. 
C) more clothing and less of other goods. 
D) less clothing since clothing is an inferior good. 
A) more clothing due to the substitution effect. 
B) less clothing due to the income effect. 
C) more clothing and less of other goods. 
D) less clothing since clothing is an inferior good.

Question 19

Compared to a system of providing education free of cost at government schools,a voucher program that provides the means for parents to send their school-age children to private schools at government expense:

Accepted Answer

A) will allow families to consume a higher quantity and better quality of education. 
B) will lower the quality of education provided. 
C) will not affect the quantity and quality of education. 
D) will result in a lower quantity of education consumed. 
A) will allow families to consume a higher quantity and better quality of education. 
B) will lower the quality of education provided. 
C) will not affect the quantity and quality of education. 
D) will result in a lower quantity of education consumed.

Question 20

Which of the following groups are better off under an annual fee system of garbage disposal?

Accepted Answer

A) Households that generate the average amount of trash 
B) Households that generate less than the average amount of trash 
C) All households that opt for the annual fee system 
D) Households that generate more than the average amount of trash 
A) Households that generate the average amount of trash 
B) Households that generate less than the average amount of trash 
C) All households that opt for the annual fee system 
D) Households that generate more than the average amount of trash

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

Show and explain why substituting an unrestricted cash transfer for an excise subsidy of equal cost to the government must lead to less consumption of the subsidized good and more consumption of other goods.

For a risk-averse individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

Fun-day,a theme park,recently changed its ticket pricing plan from Plan 1 to Plan 2.How would you explain the sudden increase in the number of people at the theme park?

Which of the following statements is true?

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.

Assume an indifference map with other goods on the vertical axis and health on the horizontal axis.The government provides families with $400 vouchers that can be redeemed for healthcare services at any hospital,public or private.The budget line for a family that avails this voucher scheme will:

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

For a risk-loving individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

In which of the following cases can a subsidy possibly harm its recipients?

When comparing T-bills and stocks,a risk-averse investor may choose to invest in T-bills although stocks give higher average returns because _____.

A subsidy can actually cause the consumption of subsidized goods to fall if:

An excise subsidy given on clothing will encourage consumers to purchase:

Compared to a system of providing education free of cost at government schools,a voucher program that provides the means for parents to send their school-age children to private schools at government expense:

Which of the following groups are better off under an annual fee system of garbage disposal?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 5: Using Consumer Choice Theory

For a risk-neutral individual,with return on the X-axis and total utility on the Y-axis,slope of the total utility curve:

Show and explain why substituting an unrestricted cash transfer for an excise subsidy of equal cost to the government must lead to less consumption of the subsidized good and more consumption of other goods.

For a risk-averse individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

Fun-day,a theme park,recently changed its ticket pricing plan from Plan 1 to Plan 2.How would you explain the sudden increase in the number of people at the theme park?

Which of the following statements is true?

In an attempt to encourage the use of solar energy,the government pays a part of the price of solar panels to the producer and allows consumers to buy as many panels as they wish at the subsidized price.This is an example of a(n)_____.

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.

Assume an indifference map with other goods on the vertical axis and health on the horizontal axis.The government provides families with $400 vouchers that can be redeemed for healthcare services at any hospital,public or private.The budget line for a family that avails this voucher scheme will:

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

For a risk-loving individual,with return on the X-axis and total utility on the Y-axis,the slope of the total utility curve:

In which of the following cases can a subsidy possibly harm its recipients?

When comparing T-bills and stocks,a risk-averse investor may choose to invest in T-bills although stocks give higher average returns because _____.

A subsidy can actually cause the consumption of subsidized goods to fall if:

An excise subsidy given on clothing will encourage consumers to purchase:

Compared to a system of providing education free of cost at government schools,a voucher program that provides the means for parents to send their school-age children to private schools at government expense:

Which of the following groups are better off under an annual fee system of garbage disposal?

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Exchange, Efficiency, and Prices

Production

The Cost of Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters