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Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose 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 total utility is ________ utils.
84. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose 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, as a utility maximizer:
85. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Assume that the probability that the sitcom does not make it to television is 60%,
the probability that it makes it to television but is not the most viewed show in its
time slot is 30%, and the probability that it makes it to television and is the most
viewed show in its time slot is 10%. Norman's expected income is:
86. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose that the probability that the sitcom does not make it to television is 60%,
the probability that it makes it to television but is not the most viewed show in its
time slot is 30%, and that the probability that it makes it to television and is the
most viewed show in its time slot is 10%. Norman's expected total utility is
________ utils.
87. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose the probability that the sitcom does not make it to television is 60%, 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
10%. As a utility maximizer, Norman:
88. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose the probability that the sitcom does not make it to television is 30%, that
it makes it to television but is not the most viewed show in its time slot is 50%,
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:
89. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose the probability that the sitcom does not make it to television is 30%, that
it makes it to television but is not the most viewed show in its time slot is 50%,
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 total utility is ________ utils.
90. Multiple Choice: Reference: Ref 20-9 (Table: Choice w...
Question
Points: 0
Reference: Ref 20-9
(Table: Choice with Uncertainty) Look at the table Choice with Uncertainty.
Suppose the probability that the sitcom does not make it to television is 30%, that
it makes it to television but is not the most viewed show in its time slot is 50%,
and that it makes it to television and is the most viewed show in its time slot is
20%. Given this information, Norman, as a utility maximizer:
91. Multiple Choice: Scenario: Choosing InsuranceThe Ramir...
Question
Points: 0
Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover
the cost of repairs. They face two possible states: state 1, in which their cars need
no repairs and their income available for purchasing other goods and services is
equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs
and their income available for purchasing other goods and services is reduced to
$40,000. The probability of repairs is 10%, while the probability of no repairs is
90%.
Reference: Ref 20-10
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing
Insurance. The Ramirez family can buy insurance that will cover the full cost of
repairs for $2,000. If family members are risk-averse and want to maximize their
expected utility:
92. Multiple Choice: Scenario: Choosing InsuranceThe Ramir...
Question Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover
the cost of repairs. They face two possible states: state 1, in which their cars need
no repairs and their income available for purchasing other goods and services is
equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs
and their income available for purchasing other goods and services is reduced to
$40,000. The probability of repairs is 10%, while the probability of no repairs is
90%.
Reference: Ref 20-10
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing
Insurance. The Ramirez family can buy insurance that will cover the full cost of
repairs for $1,000. If family members are risk-averse and want to maximize their
expected utility:
Points: 0
93. Multiple Choice: Scenario: Choosing InsuranceThe Ramir...
Question Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover
the cost of repairs. They face two possible states: state 1, in which their cars need
no repairs and their income available for purchasing other goods and services is
equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs
and their income available for purchasing other goods and services is reduced to
$40,000. The probability of repairs is 10%, while the probability of no repairs is
90%.
Reference: Ref 20-10
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing
Insurance. The premium on a fair insurance policy for the Ramirez family will be:
94. Multiple Choice: Scenario: Choosing InsuranceThe Ramir...
Question Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover
the cost of repairs. They face two possible states: state 1, in which their cars need
no repairs and their income available for purchasing other goods and services is
equal to $50,000; and state 2, in which their cars need $10,000 worth of repairs
and their income available for purchasing other goods and services is reduced to
$40,000. The probability of repairs is 10%, while the probability of no repairs is
90%.
Reference: Ref 20-10
(Scenario: Choosing Insurance) Refer to the information in the scenario Choosing
Insurance. The Ramirez family can buy insurance that will cover the full cost of
repairs for $900. If family members are risk-averse and maximize their expected
utility:
Points: 0
Points: 0
95. Multiple Choice: Reference: Ref 20-11 (Table: Amy's U...
Question
Reference: Ref 20-11
(Table: Amy's Utility Function) Look at the table Amy's Utility Function. Amy is an
entrepreneur with income equal to $40,000. Amy is considering development of a
new product. The probability that her new product earns Amy $30,000 in additional
income is 0.5, and the probability that Amy incurs a reduction of $10,000 from her
current income is 0.5. Amy's expected income after developing her new product is:
96. Multiple Choice: Reference: Ref 20-11 (Table: Amy's U...
Question
Points: 0
Points: 0
Reference: Ref 20-11
(Table: Amy's Utility Function) Look at the table Choosing Insurance. Amy is an
entrepreneur with current income equal to $40,000. Amy is considering
development of a new product. The probability that her new product earns Amy
$30,000 in additional income is 0.5, and the probability that Amy incurs a reduction
of $10,000 from her current income is also 0.5. Amy's expected utility after
developing her new product is ________ utils.
97. Multiple Choice: Reference: Ref 20-11 (Table: Amy's U...
Question
Reference: Ref 20-11
(Table: Amy's Utility Function) Look at the table Choosing Insurance. Amy is an
entrepreneur with current income equal to $40,000. Amy is considering
development of a new product. The probability that her new product earns Amy
$10,000 in additional income is 0.5, and the probability that Amy incurs a reduction
of $10,000 from her current income is also 0.5. Suppose Amy can buy a fair
insurance policy that will compensate her for any losses. Amy's premium will be
________, her guaranteed income will be ________, and her expected utility will be
________ utils.
Points: 0
98. Multiple Choice: Consider four individuals: Hank, Babe...
Question Consider four individuals: Hank, Babe, Barry, and Willie. Hank's marginal utility of
income curve is constant; Babe's marginal utility of income curve is slightly
diminishing; Barry's marginal utility of income curve is strongly diminishing; and
Willie's marginal utility of income curve is upward sloping. All else equal, which of
these individuals will be most risk-averse?
99. Multiple Choice: In an efficient allocation of risk:
Question In an efficient allocation of risk:
100. Multiple Choice: Mary and Bob are trying to decide how...
Question Mary and Bob are trying to decide how much auto insurance to buy. They share
the same expectations of an accident, with the same dollar loss. They also have
the same income levels. However, Mary would rather buy very little insurance, while
Bob would rather buy much more insurance. This suggests that:
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101. Multiple Choice: The total amount of funds that potent...
Question The total amount of funds that potentially could be paid out by an insurance
company is:
102. Multiple Choice: Suppose the wealth of buyers in the i...
Question Suppose the wealth of buyers in the insurance market falls. We would expect
insurance premiums to ________ as the ________.
103. Multiple Choice: Barcelona and Los Angeles are similar...
Question Barcelona and Los Angeles are similar towns, except Barcelona has a good public
transportation system and Los Angeles does not. Auto insurance will probably be
more expensive in ________, since the insurance ________.
104. Multiple Choice: An efficient market for risk (such as...
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Question An efficient market for risk (such as an insurance market) is most likely to exist:
105. Multiple Choice: Which of the following is one of the ...
Question Which of the following is one of the principles on which the insurance industry
rests?
106. Multiple Choice: People who want to reduce the risk th...
Question People who want to reduce the risk they face may pay other people who are less
sensitive to risk to take on some of their risk. As a result:
107. Multiple Choice: The funds that an insurance company c...
Question The funds that an insurance company could potentially pay out are known as the:
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108. Multiple Choice: Which of the following is true if the...
Question Which of the following is true if the insurance market is efficient?
Answer The deductibles eliminate moral hazard.
109. Multiple Choice: If those who are most willing to bear...
Question If those who are most willing to bear risk end up bearing it, then we say that the
insurance market is:
Answer in equilibrium.
110. Multiple Choice: As the premium for an insurance polic...
Question As the premium for an insurance policy rises, there is a(n):
Answer decrease in the demand for insurance.
111. Multiple Choice: As the premium for an insurance polic...
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Question As the premium for an insurance policy falls, there is a(n):
112. Multiple Choice: Which of the following might explain ...
Question Which of the following might explain why the supply curve of insurance policies
would shift to the right?
113. Multiple Choice: Assume that flood insurance premiums ...
Question Assume that flood insurance premiums are determined in the competitive market.
Suppose that devastating floods along the Mississippi River have increased the
degree of risk aversion among the insurance investors in this market. What will
happen to the market for flood insurance policies?
114. Multiple Choice: We would consider a tornado and a CEO...
Question We would consider a tornado and a CEO scandal that hit a construction company
on the same day as:
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115. Multiple Choice: Suppose the probability of a major th...
Question Suppose the probability of a major theft at a hotel is 1%, while the probability of an
earthquake hitting the hotel is 2.3%. The probability that both would occur on the
same day is therefore:
116. Multiple Choice: Scenario: Buying SharesJordi is consi...
Question Scenario: Buying Shares
Jordi is considering buying shares in two companies, Apple and Microsoft. If he
invests $1,000 in Apple, there is a 40% probability that his investment will be worth
only $800 and a 60% probability that it will be worth $1,200 at the end of one year.
If he invests $500 in Apple, there is a 40% probability that his investment will be
worth $400 and a 60% probability that it will be worth $600 at the end of the year.
The corresponding numbers for investment in Microsoft are identical.
Reference: Ref 20-12
(Scenario: Buying Shares) Based on the information provided in the scenario
Buying Shares, the probability that Jordi will sustain a loss (i.e., that his
investment at the end of the year will be worth less than $1,000) is ________ if he
invests $1,000 in either Apple or Microsoft and is ________ if he invests $500
apiece in Apple and in Microsoft.
Points: 0
Points: 0
117. Multiple Choice: Scenario: Buying SharesJordi is consi...
Question Scenario: Buying Shares
Jordi is considering buying shares in two companies, Apple and Microsoft. If he
invests $1,000 in Apple, there is a 40% probability that his investment will be worth
only $800 and a 60% probability that it will be worth $1,200 at the end of one year.
If he invests $500 in Apple, there is a 40% probability that his investment will be
worth $400 and a 60% probability that it will be worth $600 at the end of the year.
The corresponding numbers for investment in Microsoft are identical.
Reference: Ref 20-12
(Scenario: Buying Shares) Based on the information provided in the scenario
Buying Shares, which of the following is true?
118. Multiple Choice: The strategy of eliminating (or almos...
Question The strategy of eliminating (or almost eliminating) risks by taking a small share in
many independent events or by taking advantage of the predictability associated
with large numbers of independent events is known as:
119. Multiple Choice: Which of the following events are not...
Question Which of the following events are not independent?
Answer You forget your umbrella; it rains.
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120. Multiple Choice: On any particular day, the probabilit...
Question On any particular day, the probability that it will rain is 25% and that you will be
sick is 10%. The probability that both happen on the same day is:
Answer 0.25%.
121. Multiple Choice: Scenario: DiversificationMorris is c...
Question Scenario: Diversification
Morris is considering investing $10,000 in a sunglass company or a rain poncho
company. If it is a rainy year and he invests only in the sunglass company, he
expects to lose $5,000 at the end of the year. However, if it is a rainy year and he
invests only in the rain poncho company, he expects to earn $10,000. If it is a
sunny year and he invests only in the sunglass company, he expects to earn
$10,000 at the end of the year; if he invests only in the rain poncho company, he
expects to lose $5,000 in a sunny year. There is a 50% chance of a sunny year
and a 50% chance of a rainy year.
Reference: Ref 20-13
(Scenario: Diversification) Based on the information in the scenario Diversification, if
Morris invests all of his money in the sunglass company, what is his expected gain
122. Multiple Choice: Scenario: DiversificationMorris is c...
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