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Question 1

5 out of 5 points

If the prices of all goods increase by the same proportion as income, the quantity demanded of good X will

Answer Selected Answer:

remain unchanged.

Correct Answer:

remain unchanged.

y

Question 2

0 out of 5 points

With only two goods, if the income effect is in the opposite direction as the substitution effect but the income effect dominates then the good is

Answer Selected Answer:

**inferior but not Giffen
**

Correct Answer:

Giffen

y

Question 3

5 out of 5 points

A change in the distribution of income which leaves total income constant will not shift the market demand curve for a product providing

Answer Selected Answer:

**any of the above conditions occur.
**

Correct Answer:

**any of the above conditions occur.
**

y

Question 4

0 out of 5 points

Which of the following functional forms for utility suggests the greatest substitution effect when starting at the point where PX = PY

Answer Selected Answer:

U = min (X, Y)

Correct Answer:

U=X+Y

y

Question 5

0 out of 5 points

**Suppose demand can be written as P = 5. The elasticity of demand is)
**

Answer Selected Answer:

**constant regardless of prices and unit elastic.
**

Correct Answer:

**constant regardless of prices and perfectly elastic.
**

y

Question 6

0 out of 5 points

In Homogenia everyone is the same. Demand for apples is P = A - Bq for each of its 1 million citizens. Market demand for apples in Homogenia is given by the equation

Answer Selected Answer:

Correct Answer:

y

Question 7

0 out of 5 points

Suppose there are two people who demand apples. Suppose one considers apples and oranges complements and another considers them substitutes. An increase in the price of oranges will

Answer Selected Answer:

**decrease the market demand for apples
**

Correct Answer:

**have an uncertain impact on the market demand for apples.
**

y

Question 8

5 out of 5 points

Suppose you were to believe that ³money illusion´ exists that is as prices and incomes both rise proportionally, people buy more. Which of the following characteristics of demand does that cause you to doubt?

Answer Selected Answer:

**demand functions are homogeneous of degree zero.
**

Correct Answer:

**demand functions are homogeneous of degree zero.
**

y

Question 9

0 out of 5 points

If there are only two goods and these are consumed in fixed proportions, the price elasticities of demand for these two goods will sum to

Answer Selected Answer:

0.0

Correct Answer:

-1.0

y

Question 10

5 out of 5 points

**A decrease in demand is represented by
**

Answer Selected Answer:

**a shift inward of the entire demand curve.
**

Correct Answer:

**a shift inward of the entire demand curve.
**

y

Question 11

0 out of 5 points

**An individual will never buy complete insurance if
**

Answer Selected Answer:

**he or she is risk averse.
**

Correct Answer:

**he or she is a risk taker.
**

y

Question 12

5 out of 5 points

**If a fair gamble is played many times, the combined monetary losses or gains will
**

Answer Selected Answer:

approach zero.

Correct Answer:

approach zero.

y

Question 13

0 out of 5 points

**Risk averse individuals will diversify their investments because this will
**

Answer Selected Answer:

**increase their expected returns.
**

Correct Answer:

**reduce the variability of their returns.
**

y

Question 14

5 out of 5 points

Suppose a lottery ticket costs $1and has a jackpot of $1 million. What must the probability of winning nothing be if the bet is fair?

Answer Selected Answer:

99.9999%

Correct Answer:

99.9999%

y

Question 15

5 out of 5 points

Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 90%. What must the jackpot be for this to be a fair bet?

Answer Selected Answer:

10

Correct Answer:

10

y

Question 16

5 out of 5 points

Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 99%. What must the jackpot be for this to be a fair bet?

Answer Selected Answer:

100

Correct Answer:

100

y

Question 17

5 out of 5 points

Suppose a lottery ticket costs $1 and the probability that a holder will win nothing is 99.9%. What must the jackpot be for this to be a fair bet?

Answer Selected Answer:

1,000

Correct Answer:

1,000

y

Question 18

5 out of 5 points

**A gamble can be described as ³fair´ if the expected value of the gamble (including any costs of play) is
**

Answer Selected Answer:

zero.

Correct Answer:

zero.

y

Question 19

5 out of 5 points

Suppose a risk-neutral power plant needs 10,000 tons of coal for its operations next month. It is uncertain about the future price of coal. Today it sells for $60 a ton but next month it could be $50 or $70 (with equal probability). How much would the power plant be willing to pay today for an option to buy a ton of coal next month at today¶s price? (Ignore discounting over the short period of a month.)

Answer Selected Answer:

5

Correct Answer:

5

y

Question 20

0 out of 5 points

Suppose a family has saved enough for a 10 day vacation (the only one they will be able to take for 10 years) and has a utility function U = V1/2(where V is the number of healthy vacation days they experience). Suppose they are not a particularly healthy family and the probability that someone will have a vacation-ruining illness (V = 0) is 20%. What is the expected value of V?

Answer Selected Answer:

2

Correct Answer:

8

Friday, December 23, 2011 10:58:55 AM EST

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