Many people buy fire insurance when they are not required to do so. What does this tell you about their risk preferences?
What will be an ideal response?
It tells you that most people are risk averse. They are unwilling to take a risk because the costs of losing in terms of their well-being or utility exceed the gains of possibly winning. Winning in this case is defined as one's house not catching fire. Losing is when it burns without having purchased fire insurance.
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What area in the above figure is the consumer surplus at the efficient quantity?
A) A B) A + B + C C) F D) D + E + F
In a Nash equilibrium outcome for a two-firm balanced oligopoly
a. both firms avoid the worst case possible b. both firms end up in the worst case possible c. prices charged by both firms are relatively high d. profits earned by both firms are relatively high e. both firms form a cartel
Demand-pull inflation is associated with a(n)
a. decrease in the aggregate supply curve b. increase in the aggregate supply curve c. increase in the aggregate demand curve d. decrease in the aggregate demand curve e. decline in the availability of a productive resource
The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of
a. substitution bias. b. product-improvement bias. c. introduction of new goods. d. unmeasured quality change.