Question 1

The value of the discount weight used to translate utils into current utils is ________.

Accepted Answer

A)  1 
B)  less than 1 
C)  greater than 1 but less than 2 
D)  greater than 1 but less than 3

Question 2

Scenario: An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.
-Refer to the scenario above.Which of the following statements is true?

Accepted Answer

A)  The present value of Option A > The present value of Option B. 
B)  The present value of Option A > The present value of Option C. 
C)  The present value of Option B > The present value of Option C. 
D)  The present value of Option B > The present value of Option A.

Question 3

How does the idea of independent events help explain the gambler's fallacy in a roulette game?

Accepted Answer

The answer of How does the idea of independent events...

Question 4

Define utility.What are individual units of utility called?

Accepted Answer

The answer of Define utility.What are individual units of utility...

Question 5

If knowing about one outcome does not help to predict another outcome,the outcomes are said to be ________.

Accepted Answer

A)  exclusive 
B)  inclusive 
C)  dependent 
D)  independent

Question 6

Scenario: An air-conditioner manufacturing company offers a warranty of 3 years on a new air conditioner at a cost of $150. The air conditioner costs $1,500 and has a 15/100 or 15 percent probability of a breakdown each year. A new air conditioner will cost $1,000, $650, and $350, respectively, in the following 3 years. The interest rate on your credit card is 12 percent.
-Refer to the scenario above.The net present value of buying the warranty is ________.

Accepted Answer

A)  $99.02 
B)  $278 
C)  $135.65 
D)  $85

Question 7

Scenario: A roulette wheel has fifty pockets numbered from 1 to 50. An individual may bet on more than one pocket on the wheel.
-Refer to the scenario above.If the individual places her bet on one pocket,her likelihood of winning is ________ percent.

Accepted Answer

A)  0.50 
B)  1 
C)  2 
D)  5

Question 8

Scenario: Suppose the government decides to levy a tax on the emission of greenhouse gases. The tax on the emission of greenhouse gases has been estimated to provide a future benefit of 1,000 utils, while the current cost of the tax imposed is 700 utils.
-Refer to the scenario above.Suppose the discount weight attached to the future benefit is $ \frac{1}{7} $ .People will earn a net benefit equal to ________ utils.

Accepted Answer

A)  ‒500 
B)  ‒700 
C)  860 
D)  900

Question 9

Define the following terms.
a)Risky outcome
b)Probability

Accepted Answer

The answer of Define the following terms.
a)Risky outcome
b)Probability...

Question 10

Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50.
-Refer to the scenario above.What is the expected value of the gamble?

Accepted Answer

A)  $0 
B)  $50 
C)  $75 
D)  $100

Question 11

Jenna deposits $1,000 in a bank at an interest rate of 6 percent compounded annually.Calculate the future value of the sum deposited for the following periods.
a)After 2 years
b)After 4 years

Accepted Answer

The answer of Jenna deposits $1,000 in a bank at...

Question 12

Scenario: An investor is considering three different investment options. Investing in Option A pays him $4,000 after 6 years, investing in Option B pays him $7,600 after 7 years, and investing in Option C pays him $9,000 after 8 years. If he deposits the amount with a bank, he would receive an annual interest rate of 9 percent.
-Refer to the scenario above.If the investor plans to invest a sum of $4,000,the net present value of Option C is ________.

Accepted Answer

A)  ‒$1,236.36 
B)  ‒$337.56 
C)  $516.80 
D)  $1,800.79

Question 13

Why do preference reversals occur?

Accepted Answer

The answer of Why do preference reversals occur?...

Question 14

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200.
-Refer to the scenario above.What is the probability of winning?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent

Question 15

Scenario: An air-conditioner manufacturing company offers a warranty of 3 years on a new air conditioner at a cost of $150. The air conditioner costs $1,500 and has a 15/100 or 15 percent probability of a breakdown each year. A new air conditioner will cost $1,000, $650, and $350, respectively, in the following 3 years. The interest rate on your credit card is 12 percent.
-Refer to the scenario above.A change in the probability of breakdown to 10 percent will ________.

Accepted Answer

A)  increase the net present value to $135.65. 
B)  lead to a negative net present value. 
C)  decrease the net present value to $16.02. 
D)  decrease the net present value to $10.

Question 16

A util is a single unit of the measure of ________.

Accepted Answer

A)  income 
B)  savings 
C)  satisfaction 
D)  expenditure

Question 17

Scenario: Your friend and you decide to bet on a baseball game. You offer to pay $200 if you lose the bet, and your friend has to pay $100 if you win the bet. The probability of your winning or losing the bet is $ \frac{1}{2} $ .
-Refer to the scenario above.Suppose the amount that you receive on winning the bet is increased to $300.Which of the following statements is true?

Accepted Answer

A)  There is no change in the outcome of the game. 
B)  Your expected value of the bet will be positive. 
C)  You will withdraw from the bet as the cost of betting increases. 
D)  The probability of you winning the game increases to 2/100.

Question 18

When economists value rewards that will be experienced in the future,they multiply the reward by a ________.

Accepted Answer

A)  positive factor greater than 1 
B)  positive factor less than 1 
C)  negative factor greater than ‒1 
D)  negative factor less than ‒1

Question 19

A sum of $10,000 is deposited in a bank.Consider two scenarios: the bank offering an annual rate of interest of 10 percent and the bank offering an annual rate of interest of 15 percent.Compare the time value of money generated in both cases for the following periods.
a)After 1 year
b)After 5 years

Accepted Answer

The answer of A sum of $10,000 is deposited in...

Question 20

Sarah is considering lending an amount of $45,000 to her friend who promises to return $60,000 at the end of 10 years.What is the net present value of Sarah's investment? Is it worthwhile undertaking this investment? Assume that the market rate of interest is 6 percent.

Accepted Answer

The answer of Sarah is considering lending an amount of...

Exam 15: Trade-Offs Involving Time and Risk

The value of the discount weight used to translate utils into current utils is ________.

How does the idea of independent events help explain the gambler's fallacy in a roulette game?

Define utility.What are individual units of utility called?

If knowing about one outcome does not help to predict another outcome,the outcomes are said to be ________.

Scenario: A roulette wheel has fifty pockets numbered from 1 to 50. An individual may bet on more than one pocket on the wheel. -Refer to the scenario above.If the individual places her bet on one pocket,her likelihood of winning is ________ percent.

Define the following terms. a)Risky outcome b)Probability

Scenario: An unbiased coin is tossed, and if the outcome is heads, an individual wins $50. If the outcome is tails, the individual has to pay $50. -Refer to the scenario above.What is the expected value of the gamble?

Jenna deposits $1,000 in a bank at an interest rate of 6 percent compounded annually.Calculate the future value of the sum deposited for the following periods. a)After 2 years b)After 4 years

Why do preference reversals occur?

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200. -Refer to the scenario above.What is the probability of winning?

A util is a single unit of the measure of ________.

When economists value rewards that will be experienced in the future,they multiply the reward by a ________.

A sum of $10,000 is deposited in a bank.Consider two scenarios: the bank offering an annual rate of interest of 10 percent and the bank offering an annual rate of interest of 15 percent.Compare the time value of money generated in both cases for the following periods. a)After 1 year b)After 5 years

Sarah is considering lending an amount of $45,000 to her friend who promises to return $60,000 at the end of 10 years.What is the net present value of Sarah's investment? Is it worthwhile undertaking this investment? Assume that the market rate of interest is 6 percent.