Suppose Lily's indifference curves are defined as U = ?FS + ?FH, where FS is consumption during sunny weather and FH is consumption during a hurricane. Lily receives 64 units of food when it is sunny and 16 units of food when there is a hurricane. If the probability of sunshine is ? = 0.5, the expected consumption is:
A. 52
B. 28
C. 40
D. 5
C. 40
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Assume that an individual has to decide between a two-day vacation and a three-day vacation to the same place. If he uses optimization in differences, he will:
A) only think about the net benefits of the extra day. B) compare the total net benefits of both alternatives. C) choose the three-day vacation only if the costs incurred on the third day exceed the benefits he receives. D) spend more time to come to a decision than if he would have used optimization in levels.
Diminishing marginal productivity implies
a. decreasing marginal costs b. increasing marginal costs c. decreasing average costs d. decreasing total costs
Some economists argue suddenly reducing money supply growth is a costly way to reduce inflation and that it may not work. For example, if a government cuts money growth but makes no real fiscal reforms, people will expect the government will eventually
need to expand the money supply to pay for its expenditures. Thus, the promise to fight inflation will not be credible. Explain why credibility is important to a reduction in the inflation rate.
What is meant by scientific method?
What will be an ideal response?