Suppose a consumer's expected utility function given two possible states of nature A and B can be expressed in terms of dollars worth of food consumption, F, in both states as U(FA, FB) = [0.6 × ln(FA)] + [0.4 × ln(FB)]. For this utility function, MUA is (0.6/FA) and MUB is (0.4/FB). Without insurance, the consumer can consume 200 in state A but only 50 in state B. The consumer can purchase insurance at a premium of 50 cents per dollar of benefit. How much insurance will she purchase?
A. $50
B. $150
C. $250
D. $416.67
A. $50
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Which of the following is NOT an example of moral hazard in business?
A) A bank buys risky mortgage securities because they believe the government will provide a bail-out if the investment performs badly. B) A firm uses venture capital to speculate in the commodity futures market. C) A firm does not hire adequate security protection for its warehouse after it pays for insurance on the property. D) Firms with the large debt problems are more likely to apply for bank loans than financially stable firms.
When demand increases in a perfectly competitive market, the market price:
A. increases in the short run and falls in the long run. B. decreases in the short run and increases in the long run. C. increases in the short run and stays permanently higher in the long run. D. decreases in the short run and stays permanently lower in the long run.
A tax whose impact varies inversely with the income of the person taxed, and poor people have a higher percentage of their income taxed than rich people, is known as a:
a. regressive tax. b. progressive tax. c. proportional tax. d. flat tax. e. tax holiday.
The flatter the demand curve that passes through a given point, the more elastic the demand
a. True b. False Indicate whether the statement is true or false