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Exam 5: Using Consumer Choice Theory

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Question 21

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Brenda starts a business for $150,000 that gives her a 50% chance of losing and a 50% chance of gaining an expected annual return of $75,000.John is content with a job that pays him $75,000 per year with near certainty;there is only about a 1% chance of losing his job each year.Suppose risk is on the horizontal axis and return on the vertical axis,Brenda's indifference curve for risk and return:

A) is flatter than John's.
B) is steeper than John's.
C) has the same slope as John's.
D) is horizontal.

E) A) and D)
F) A) and C)

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Question 22

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( A)How is insurance similar to an individual's diversified portfolio?

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One explanation is that if you were to d...

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Question 23

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Expected return is defined as _____.

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring. -Refer to Figure 5-5.Public schooling provided in the amount of B0 causes the family to increase consumption of other goods by _____.

Which of the following statements is true?

Suppose consumption in year 2 (C₂) is on the horizontal axis and consumption in year 1 (C₁) is on the vertical axis.An increase in the interest rate:

Fun-day,a theme park,recently changed its ticket pricing plan from Plan 1 to Plan 2.How would you explain the sudden increase in the number of people at the theme park?

In which of the following cases can a subsidy possibly harm its recipients?

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total outlay on food after the excise subsidy is given by _____.

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total cost incurred by the government on the excise subsidy is given by _____.

Suppose the government provides $1,400 worth of educational services for all children.Assume that public schooling cannot be supplemented with private tutoring.What would be the cost of schooling for a family that desires educational services worth $1,700?

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.The expected return on Microsoft stock over the next year is thus _____%.

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total consumption of food after the excise subsidy increases by _____.

Suppose Microsoft stock will provide either a return of 10 or 20 percent over the next year and that the probability of the former outcome is 0.25 while the probability of the latter is 0.75.If the utility an investor derives from a 10 percent return on Microsoft stock is 200 and the utility the investor derives from a 20 percent return is 400,the investor's expected utility from holding Microsoft stock is _____.

The effect of substituting an equal-cost lump-sum grant for an excise subsidy is to:

An excise subsidy given on each unit of X consumed will:

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring. -Refer to Figure 5-5.Suppose the government offers education vouchers of value $B0 instead of a fixed-quantity subsidy.The budget line will become _____.

( A)Sarah drives 6 miles to work everyday.Liam takes the same route but has to drive for a total of 11 miles.With the objective of reducing traffic jams,the government decides to impose a tax on drivers.How would an annual fixed payment of $500 as congestion charges affect Sarah and Liam? Explain your answer using indifference curves and a common budget line for Liam and Sarah.

Figure 5-1 shows the preferences of a consumer for food and other goods.He is initially in equilibrium at point A where the budget line MN is tangent to the indifference curve. Figure 5-1 -In Figure 5-1,the total outlays on food under a lump-sum grant equal in cost to the excise subsidy is given by _____.

A family's preferences toward schooling,before and after a fixed-quantity subsidy,are shown in Figure 5-5.Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring. -Refer to Figure 5-5.The fixed-quantity subsidy reduces schooling by _____.