Question 1

Dean's expected payoff from investing in Pretty Kitty Grooming only based upon the information given in problem 48 is

Accepted Answer

A)  $500 
B)  $2,000 
C)  $1,000 
D)  $1,500 
A)  $500 
B)  $2,000 
C)  $1,000 
D)  $1,500 C

Question 2

Suppose Brandon's indifference curves are defined as   ,where C is a constant,FS is consumption during sunny weather and FH is consumption during a hurricane.Further suppose Brandon receives 64 units of food when it is sunny and 16 units when there is a hurricane.If the probability of sunshine is P = 0.75,expected food consumption is

Accepted Answer

A)  28 
B)  40 
C)  52 
D)  80 
A)  28 
B)  40 
C)  52 
D)  80 C

Question 3

-Refer to Figure a.Assuming the bold line in the graph above is a constant expected consumption line where   ,which constant expected consumption line reflects an increase in   ?

Accepted Answer

A)  Dotted line 
B)  Dashed line 
C)  An increase in
  does not result in an change in the expected consumption line 
D)  A change in
  results in a parallel shift in the expected consumption line, so neither the red or green line reflects this change 
A)  Dotted line 
B)  Dashed line 
C)  An increase in
  does not result in an change in the expected consumption line 
D)  A change in
  results in a parallel shift in the expected consumption line, so neither the red or green line reflects this change A

Question 4

Given the information in problem 2 above,the probability that the Giants lose and it snows is

Accepted Answer

A)  21% 
B)  26% 
C)  95% 
D)  25% 
A)  21% 
B)  26% 
C)  95% 
D)  25%

Question 5

Suppose Alice is deciding whether or not to go to a New York Giants game.Alice's enjoyment and thus decision,depends upon two uncertain events that are out of her control: whether the Giants win and whether it snows.She will be happiest if the Giants win and it does not snow.The newspaper reports a 35% chance for snow and the Giants record suggests a 40% chance of winning.The probability that the Giants win and that it does not snow is

Accepted Answer

A)  75% 
B)  5% 
C)  26% 
D)  35% 
A)  75% 
B)  5% 
C)  26% 
D)  35%

Question 6

What is Brandon's expected utility given the information in problem 25?

Accepted Answer

A)  10 
B)  17.5 
C)  20 
D)  30 
A)  10 
B)  17.5 
C)  20 
D)  30

Question 7

Brandon's certainty equivalent given the information in problem 25 is

Accepted Answer

A)  250 
B)  306.25 
C)  18.75 
D)  17.5 
A)  250 
B)  306.25 
C)  18.75 
D)  17.5

Question 8

A person is risk loving if

Accepted Answer

A)  For a given level of expected consumption, he prefers a risky bundle to a risk less one 
B)  His indifference curve is convex to the origin 
C)  His indifference curve is concave to the origin 
D)  A and C 
A)  For a given level of expected consumption, he prefers a risky bundle to a risk less one 
B)  His indifference curve is convex to the origin 
C)  His indifference curve is concave to the origin 
D)  A and C

Question 9

-Refer to Figures d and e.Bundle A is preferred to bundle B in Figure e and not figure d because

Accepted Answer

A)  The MRS between water in a rainy season and during a drought is higher in e than in d 
B)  As the probability of a drought increases, consumers are no longer indifferent between the two bundles 
C)  As the probability of a drought decreases, water in a rainy season becomes less valuable 
D)  Consumers are indifferent between bundles A and B as the probability of a drought increases 
A)  The MRS between water in a rainy season and during a drought is higher in e than in d 
B)  As the probability of a drought increases, consumers are no longer indifferent between the two bundles 
C)  As the probability of a drought decreases, water in a rainy season becomes less valuable 
D)  Consumers are indifferent between bundles A and B as the probability of a drought increases

Question 10

Explain the relationship between the correlation of payoffs and the risk reducing effects of diversification and hedging.

Accepted Answer

Hedging is an example of a strategy to m

Question 11

Suppose Dean has $500 and he wants to maximize his expected benefit,   ,where X is his resources in dollars.There are two companies he could invest in: Dog Gone Salon,which has a payoff of $1,000 with 50% probability and $0 with 50% probability and Pretty Kitty Grooming,which has a payoff of $2,000 with 50% probability and $0 with 50% probability.Dean's expected payoff from investing in Dog Gone Salon only is

Accepted Answer

A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500 
A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500

Question 12

Assume Brandon's benefit function for water is   and he consumes water both in droughts,WD and in the rainy season,WR.Assume his water bundle is WD = 400 and WR = 100 and the probability of drought is 0.75.Expected water consumption is

Accepted Answer

A)  500 
B)  250 
C)  325 
D)  175 
A)  500 
B)  250 
C)  325 
D)  175

Question 13

Explain why a risk averse individual will purchase full insure if a policy is actually fair,but only partially insure or not insure at all,if it is not.

Accepted Answer

Risk averse individuals avoid risk if po

Question 14

Suppose Brandon's benefit function for water is   Brandon is

Accepted Answer

A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above 
A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above

Question 15

An insurance policy is

Accepted Answer

A)  The contract that reduces the financial loss associated with some risky event 
B)  The amount of money a policy holder pays for the insurance policy 
C)  The amount of money a policy holder receives if a specific loss occurs 
D)  The probability of loss from a specific event 
A)  The contract that reduces the financial loss associated with some risky event 
B)  The amount of money a policy holder pays for the insurance policy 
C)  The amount of money a policy holder receives if a specific loss occurs 
D)  The probability of loss from a specific event

Question 16

What is the risk premium of the bundle described in problem 18?

Accepted Answer

A)  5 
B)  12 
C)  16 
D)  3 
A)  5 
B)  12 
C)  16 
D)  3

Question 17

What is the risk premium for the bundle described in problem 15?

Accepted Answer

A)  52 
B)  24 
C)  49 
D)  3 
A)  52 
B)  24 
C)  49 
D)  3

Question 18

Suppose we can represent Brandon's preferences for water with an expected utility function,   ,where WD represents a quantity of water during a drought and WR represents a quantity of water in a rainy season.Brandon is

Accepted Answer

A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above 
A)  Risk averse 
B)  Risk neutral 
C)  Risk loving 
D)  None of the above

Question 19

Two variables are positively correlated if

Accepted Answer

A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other 
A)  They move in the same direction 
B)  They move in the opposite direction 
C)  Their movements tend to be unrelated 
D)  One is simply a multiple of the other

Question 20

Which investment described in problem 48 is best for Dean?

Accepted Answer

A)  Invest only in Pretty Kitty Grooming 
B)  Invest only in Dog Gone Salon 
C)  Invest in both Pretty Kitty Grooming and Dog Gone Salon 
D)  Invest in neither 
A)  Invest only in Pretty Kitty Grooming 
B)  Invest only in Dog Gone Salon 
C)  Invest in both Pretty Kitty Grooming and Dog Gone Salon 
D)  Invest in neither

Dean's expected payoff from investing in Pretty Kitty Grooming only based upon the information given in problem 48 is

-Refer to Figure a.Assuming the bold line in the graph above is a constant expected consumption line where ,which constant expected consumption line reflects an increase in ?

Given the information in problem 2 above,the probability that the Giants lose and it snows is

What is Brandon's expected utility given the information in problem 25?

Brandon's certainty equivalent given the information in problem 25 is

A person is risk loving if

-Refer to Figures d and e.Bundle A is preferred to bundle B in Figure e and not figure d because

Explain the relationship between the correlation of payoffs and the risk reducing effects of diversification and hedging.

Assume Brandon's benefit function for water is and he consumes water both in droughts,W_D and in the rainy season,W_R.Assume his water bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75.Expected water consumption is

Explain why a risk averse individual will purchase full insure if a policy is actually fair,but only partially insure or not insure at all,if it is not.

Suppose Brandon's benefit function for water is Brandon is

An insurance policy is

What is the risk premium of the bundle described in problem 18?

What is the risk premium for the bundle described in problem 15?

Suppose we can represent Brandon's preferences for water with an expected utility function, ,where W_D represents a quantity of water during a drought and W_R represents a quantity of water in a rainy season.Brandon is

Two variables are positively correlated if

Which investment described in problem 48 is best for Dean?

Introduction

Supply and Demand3

Balancing Benefits and Costs

Principles and Preferences

Constraints, Choices, and Demand

Rom Demand to Welfare

Technology and Production

Cost

Rofit Maximization

Choices Involving Time

Choices Involving Strategy

Behavioral Economics

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Exam 11: Choices Involving Risk

Dean's expected payoff from investing in Pretty Kitty Grooming only based upon the information given in problem 48 is

-Refer to Figure a.Assuming the bold line in the graph above is a constant expected consumption line where ,which constant expected consumption line reflects an increase in ?

Given the information in problem 2 above,the probability that the Giants lose and it snows is

What is Brandon's expected utility given the information in problem 25?

Brandon's certainty equivalent given the information in problem 25 is

A person is risk loving if

-Refer to Figures d and e.Bundle A is preferred to bundle B in Figure e and not figure d because

Explain the relationship between the correlation of payoffs and the risk reducing effects of diversification and hedging.

Assume Brandon's benefit function for water is and he consumes water both in droughts,WD and in the rainy season,WR.Assume his water bundle is WD = 400 and WR = 100 and the probability of drought is 0.75.Expected water consumption is

Explain why a risk averse individual will purchase full insure if a policy is actually fair,but only partially insure or not insure at all,if it is not.

Suppose Brandon's benefit function for water is Brandon is

An insurance policy is

What is the risk premium of the bundle described in problem 18?

What is the risk premium for the bundle described in problem 15?

Suppose we can represent Brandon's preferences for water with an expected utility function, ,where WD represents a quantity of water during a drought and WR represents a quantity of water in a rainy season.Brandon is

Two variables are positively correlated if

Which investment described in problem 48 is best for Dean?

Introduction

Supply and Demand3

Balancing Benefits and Costs

Principles and Preferences

Constraints, Choices, and Demand

Rom Demand to Welfare

Technology and Production

Cost

Rofit Maximization

Choices Involving Time

Choices Involving Strategy

Behavioral Economics

Equilibrium and Efficiency

Market Intervention

General Equilibrium, Efficiency, and Equity

Monopoly

Pricing Policies

Oligopoly

Externalities and Public Goods

Filters

Assume Brandon's benefit function for water is and he consumes water both in droughts,W_D and in the rainy season,W_R.Assume his water bundle is W_D = 400 and W_R = 100 and the probability of drought is 0.75.Expected water consumption is

Suppose we can represent Brandon's preferences for water with an expected utility function, ,where W_D represents a quantity of water during a drought and W_R represents a quantity of water in a rainy season.Brandon is