Question 1

As the premium for an insurance policy falls,there is an increase in the _____ insurance.

Accepted Answer

A) demand for 
B) supply of 
C) quantity demanded of 
D) quantity supplied of 
A) demand for 
B) supply of 
C) quantity demanded of 
D) quantity supplied of

Question 2

When Lloyd's of London offered to provide insurance to merchant ships in the eighteenth century,Lloyd's was:

Accepted Answer

A) exhibiting risk-averse behavior. 
B) less sensitive to risk than were those who requested insurance. 
C) attempting to decrease its exposure to risk. 
D) not very rational in its behavior. 
A) exhibiting risk-averse behavior. 
B) less sensitive to risk than were those who requested insurance. 
C) attempting to decrease its exposure to risk. 
D) not very rational in its behavior.

Question 3

If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 40% probability that it will be $50,then the expected value of the stock at the end of the year is:

Accepted Answer

A) $32. 
B) $38. 
C) $40. 
D) $43. 
A) $32. 
B) $38. 
C) $40. 
D) $43.

Question 4

A random variable has a certain future value.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer question:  
-(Table: The Total Utility of Income After College Expenses)Use Table: The Total Utility of Income After College Expenses.The Smith family's expected income after tuition is:

Accepted Answer

A) $32,500. 
B) $38,000. 
C) $40,000. 
D) $45,000. 
A) $32,500. 
B) $38,000. 
C) $40,000. 
D) $45,000.

Question 6

A person who has a constant marginal utility of income will be risk-averse.

Accepted Answer

A) True 
 B)False

Question 7

When faced with an insurance policy whose premium exceeds the expected value of the claim:

Accepted Answer

A) no one will buy it. 
B) only risk-tolerant individuals will buy it. 
C) risk-averse individuals will buy it as long as the utility associated with the insurance is greater than the expected utility without the insurance. 
D) risk-averse individuals will buy it as long as the utility associated with the insurance is less than the expected utility without the insurance. 
A) no one will buy it. 
B) only risk-tolerant individuals will buy it. 
C) risk-averse individuals will buy it as long as the utility associated with the insurance is greater than the expected utility without the insurance. 
D) risk-averse individuals will buy it as long as the utility associated with the insurance is less than the expected utility without the insurance.

Question 8

Which strategy is NOT used for dealing with adverse selection in the labor market?

Accepted Answer

A) careful screening of an applicant 
B) examination of signals from an applicant 
C) obtaining reference letters from an applicant's previous place of employment 
D) Openly asking candidates of any hidden work problems from their past. 
A) careful screening of an applicant 
B) examination of signals from an applicant 
C) obtaining reference letters from an applicant's previous place of employment 
D) Openly asking candidates of any hidden work problems from their past.

Question 9

If those who are most willing to bear risk end up bearing it,then we say that the insurance market is:

Accepted Answer

A) experiencing adverse selection. 
B) efficient. 
C) equitable. 
D) showing signs of moral hazard. 
A) experiencing adverse selection. 
B) efficient. 
C) equitable. 
D) showing signs of moral hazard.

Question 10

When some people know things that other people don't know,there is _____;it can _____ economic decisions.

Accepted Answer

A) risk aversion;facilitate 
B) blind strategy;delay 
C) private information;distort 
D) blind trust;diversify 
A) risk aversion;facilitate 
B) blind strategy;delay 
C) private information;distort 
D) blind trust;diversify

Question 11

The easiest risks to reduce by diversification are those associated with positively correlated events.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer question:  
-(Table: Choice with Uncertainty)Use Table: Choice with Uncertainty.Suppose that the probability that the sitcom does not make it to television is 50%,that it makes it to television but is not the most viewed show in its time slot is 30%,and that it makes it to television and is the most viewed show in its time slot is 20%.Given this information,Norman's expected income is:

Accepted Answer

A) $52,500. 
B) $47,500. 
C) $40,000. 
D) $37,500. 
A) $52,500. 
B) $47,500. 
C) $40,000. 
D) $37,500.

Question 13

The existence of a large and growing gambling industry clearly shows that many people are risk-loving.

Accepted Answer

A) True 
 B)False

Question 14

If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 25% probability that it will be $50,then the expected value of the stock at the end of the year is:

Accepted Answer

A) $30. 
B) $35. 
C) $40. 
D) $50. 
A) $30. 
B) $35. 
C) $40. 
D) $50.

Question 15

The premium for a(n)_____ insurance policy is equal to the expected value of the claim.

Accepted Answer

A) fair 
B) premium 
C) unfair 
D) diversification 
A) fair 
B) premium 
C) unfair 
D) diversification

Question 16

Organized-gambling venues such as those at Las Vegas tend to attract:

Accepted Answer

A) risk-loving individuals only. 
B) even risk-averse people because they are designed to allow individuals to win. 
C) people who may be irrational in their choice of gambling and are often risk-averse. 
D) only professional gamblers. 
A) risk-loving individuals only. 
B) even risk-averse people because they are designed to allow individuals to win. 
C) people who may be irrational in their choice of gambling and are often risk-averse. 
D) only professional gamblers.

Question 17

Use the following to answer question:  
-(Table: Natasha's Total Utility)Use Table: Natasha's Total Utility.Natasha earns $50,000 per year but faces losing $20,000 of it if she is late with her work.If there is a 25% probability that Natasha will be late with her work and her income will equal $30,000,what certain income leaves Natasha just as well off as her uncertain income?

Accepted Answer

A) $37,500 
B) $38,200 
C) $40,500 
D) $42,500 
A) $37,500 
B) $38,200 
C) $40,500 
D) $42,500

Question 18

Risk-averse individuals:

Accepted Answer

A) will not gamble at casinos such as those found in Las Vegas. 
B) will pay higher insurance premiums based on their risk aversion. 
C) are a minority of the population. 
D) have upward-sloping marginal utility functions. 
A) will not gamble at casinos such as those found in Las Vegas. 
B) will pay higher insurance premiums based on their risk aversion. 
C) are a minority of the population. 
D) have upward-sloping marginal utility functions.

Question 19

Many people smoke and continue poor eating habits because they have health insurance.This example illustrates:

Accepted Answer

A) moral hazard. 
B) signaling. 
C) reputation. 
D) adverse selection. 
A) moral hazard. 
B) signaling. 
C) reputation. 
D) adverse selection.

Question 20

If relevant events are _____,diversification will NOT reduce risk.

Accepted Answer

A) positively correlated 
B) negatively correlated 
C) dependent 
D) independent 
A) positively correlated 
B) negatively correlated 
C) dependent 
D) independent

As the premium for an insurance policy falls,there is an increase in the _____ insurance.

When Lloyd's of London offered to provide insurance to merchant ships in the eighteenth century,Lloyd's was:

If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 40% probability that it will be $50,then the expected value of the stock at the end of the year is:

A random variable has a certain future value.

Use the following to answer question: -(Table: The Total Utility of Income After College Expenses)Use Table: The Total Utility of Income After College Expenses.The Smith family's expected income after tuition is:

A person who has a constant marginal utility of income will be risk-averse.

When faced with an insurance policy whose premium exceeds the expected value of the claim:

Which strategy is NOT used for dealing with adverse selection in the labor market?

If those who are most willing to bear risk end up bearing it,then we say that the insurance market is:

When some people know things that other people don't know,there is _;it can _ economic decisions.

The easiest risks to reduce by diversification are those associated with positively correlated events.

The existence of a large and growing gambling industry clearly shows that many people are risk-loving.

If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 25% probability that it will be $50,then the expected value of the stock at the end of the year is:

The premium for a(n)_____ insurance policy is equal to the expected value of the claim.

Organized-gambling venues such as those at Las Vegas tend to attract:

Risk-averse individuals:

Many people smoke and continue poor eating habits because they have health insurance.This example illustrates:

If relevant events are _____,diversification will NOT reduce risk.

First Principles

Economic Models: Trade-Offs and Trade

Consumer and Producer Surplus

Supply and Demand

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Graphs in Economics

Consumer Preferences and Consumer Choice

Filters

Exam 20: Uncertainty, Risk, and Private Information

As the premium for an insurance policy falls,there is an increase in the _____ insurance.

When Lloyd's of London offered to provide insurance to merchant ships in the eighteenth century,Lloyd's was:

If a stock analyst believes there is a 10% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 40% probability that it will be $50,then the expected value of the stock at the end of the year is:

A random variable has a certain future value.

Use the following to answer question: -(Table: The Total Utility of Income After College Expenses)Use Table: The Total Utility of Income After College Expenses.The Smith family's expected income after tuition is:

A person who has a constant marginal utility of income will be risk-averse.

When faced with an insurance policy whose premium exceeds the expected value of the claim:

Which strategy is NOT used for dealing with adverse selection in the labor market?

If those who are most willing to bear risk end up bearing it,then we say that the insurance market is:

When some people know things that other people don't know,there is _____;it can _____ economic decisions.

The easiest risks to reduce by diversification are those associated with positively correlated events.

The existence of a large and growing gambling industry clearly shows that many people are risk-loving.

If a stock analyst believes there is a 25% probability that the stock price of Dymonatis will be $30 at the end of the year,a 50% probability that it will be $40,and a 25% probability that it will be $50,then the expected value of the stock at the end of the year is:

The premium for a(n)_____ insurance policy is equal to the expected value of the claim.

Organized-gambling venues such as those at Las Vegas tend to attract:

Risk-averse individuals:

Many people smoke and continue poor eating habits because they have health insurance.This example illustrates:

If relevant events are _____,diversification will NOT reduce risk.

First Principles

Economic Models: Trade-Offs and Trade

Consumer and Producer Surplus

Supply and Demand

Price Controls and Quotas: Meddling With Markets

Elasticity

Taxes

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Graphs in Economics

Consumer Preferences and Consumer Choice

Filters

When some people know things that other people don't know,there is _;it can _ economic decisions.