Exam 20: Uncertainty and Information

-Andrew's utility of wealth schedule is given in the above table. The table indicates that his marginal utility of wealth ________ as his wealth increases.

In an ad for insurance, the text reads "Life's an adventure, and there are plenty of perils awaiting your jewelry: a lost or broken stone, theft, accidental loss, damage, mysterious disappearance Have you thought about insurance?" What is the economic reasoning for an individual to buy insurance?

Insurance companies charge a lower premium to drivers who carry a higher deductible because

When would a risk averse individual not insure a risky event?

-Adriana wants to try working as an independent contractor this summer. She has a 50 percent chance that she will make $9,000 and 50 percent chance that she will make nothing. Her utility of wealth curve is shown in the figure above. What's Adriana's expected utility from taking this job?

-Adriana wants to try working as an independent contractor this summer. She has a 50 percent chance that she will make $9,000 and 50 percent chance that she will make nothing. Her utility of wealth curve is shown in the figure above. What minimum fixed salary should another employer offer Adriana to persuade her to work for his firm?

In the used car market without warranties, adverse selection results in

Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000 and lemons are worth $4,000. Without effective signals such as warranties, the owners of peaches cannot sell their cars for $10,000 because the

-Gunnar can work as a campus security officer at a guaranteed salary of $20,000 per year or as a real estate agent. If Gunnar works as a real estate agent, there is a 50 percent chance that he will earn $10,000 per year and a 50 percent chance that he will earn $30,000 per year. Based on the above table, to maximize his expected utility, Gunnar will

In an ad for insurance, the text reads "Life's an adventure, and there are plenty of perils awaiting your jewelry: a lost or broken stone, theft, accidental loss, damage, mysterious disappearance Have you thought about insurance?" How does the inclusion of accidental loss and mysterious disappearance create moral hazard?

Dan, age 19, may have trouble buying insurance at a low price because

A risk averse person has diminishing marginal utility of wealth.

If Al is risk averse, as his wealth increases, his total utility of wealth ________ and his marginal utility of wealth ________.

Moral hazard exists chiefly because of

In the market for automobile insurance, moral hazard implies that

When Sardar buys insurance, on net he

"People buy insurance do protect themselves from moral hazard." True or false? Explain.

If Sally drives less carefully after buying auto insurance, she illustrates

In the market for automobile insurance, adverse selection implies that

-In the figure above, Lourdita faces a 0.5 probability of receiving $3,000 and a 0.5 probability of receiving $9,000. Her cost of bearing this risk is the distance from