The statement "risk requires compensation" implies that people: Answer a. Do not take risk b. Only accept risk when they absolutely have to c. Will only accept risk when they are rewarded for doing so d. Avoid risk at all cost

B: Theory: Choice under uncertainty 3. Nigel would be (just) willing to pay £5 for a bet giving 50% chance of £20 and 50% chance of nothing. What is the expected value of this bet? 4. Represent Nigel's preferences in a suitably labelled graph. 5. A company offers Nigel full insurance, so that in the 'bad' state of the world it will give him a pay out of £20. If the company makes zero profits, what should premium should the company charge? Would Nigel take the insurance? (explain)

In a repeated decision for which the present value of the benefits of cheating are greater than the present value of the costs of cheating, A. deciding to cheat is a value-maximizing decision. B.deciding to cheat is never a value-maximizing decision.   C.None of the above

Individuals will prefer to fully insure against a potential adverse event if A. individuals are risk-loving and insurance is priced at an actuarially fair rate. B. individuals are risk-averse and insurance is priced at an actuarially fair rate. C. individuals are risk-loving and insurance is priced above the actuarially fair rate. D. individuals are risk-averse and insurance is priced above the actuarially fair rate.

1. Mel is thinking of going on a cruise. Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50. The probability of nice weather is 60 percent and the probability of bad weather is 40 percent. Trip insurance is sometimes available. If purchased, it allows travelers to delay the cruise until the weather is nice. Suppose that the price of the cruise is $1,200. If Mel is risk-neutral, then Mel should: not buy trip insurance. only buy trip insurance if it costs less than $780. only buy trip insurance if it costs less than $20. only buy trip insurance if it costs less than $50. 2. Several web sites, like Pricewatch.com, allow consumers to input the name of a product, and the site then returns a list of suppliers with their respective prices for the product. This: increases the benefit of search.. increases the free-rider problem. reduces the benefit of search. reduces the cost of search.

A. From the graph below explain how an insurance plan which provides the buyer a $15,000 wealth level, regardless of any uncertain event, is a good deal for the buyer? In other words, what does the distance between points D’ and C’ represent? Note we are referring to D prime, not D.   B. Considering the graph below, can you explain the difference between expected utility and certainty utility?

QUESTION 48 A recent study demonstrated that when states pass laws mandating that health insurance cover treatment for alcoholism, alcoholism rates in the state as well as alcohol related medical issues and drunk driving increase significantly. This is an example of: A. Adverse selection B. Risk spreading C. Moral hazard D. Opportunism

Who is most risk-averse? a-an individual with slightly diminishing marginal utility. b-all individuals are equally risk-averse. c-an individual with rapidly diminishing marginal utility. d-an individual who does not experience diminishing marginal utility.

Short questions a. Describe the first and second Welfare Theorem b. Describe the difference between risk aversion, risk neutrality and risk prefering c. Describe and explain the non-satiation assumption d. Describe and explain the difference between adverse selection and moral hazard e. Describe and explain the difference between income effect and substitution effect

Which characteristic is being displayed when you consider all sides of an issue ? Select one : a . Knowledge b . Objectivity c . Expertise d . Honest e . Audience awareness To establish credibility with your audience , you should select one : a . Impress them with a long list of your accomplishments. b . use hedging words ( "may ," " perhaps " ) to demonstrate you're willing to tell your audience what they want to hear . c . be modest and deferential . d . show that you are confident and that you believe in yourself and in your message