Which of the following best illustrates the free rider problem?
A) For every purchase of a $100 season pass, you are entitled to free entry to an amusement park for the entire summer.
B) If your neighbors redo the landscapes in their yards, it is likely that the value of your house will increase.
C) Since no one owns rhinos and rhinos are valued for their horns, rhinos can be hunted to extinction.
D) Homeowners in a small neighborhood decide that security lighting is good for the neighborhood. One homeowner installs the lighting and asks you to contribute toward the cost, but you choose not to contribute.
D
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What is the formula for the present value of $1 one year from now? If the rate of interest is 5 percent, what is the present value of $10 to be paid one year from now?
What will be an ideal response?
Those who think that a popular investment is necessarily a good investment often find themselves earning low returns.
Answer the following statement true (T) or false (F)
When a firm ignores the opportunity cost of capital when making investment or shutdown decisions, this is a case of
a. Fixed-cost fallacy b. Sunk-cost fallacy c. Hidden-cost fallacy d. None of the above
The change in the quantity demanded of any good is always caused by:
a. a change in consumers' preferences for that good. b. a change in the general income levels of the consumers who buy that good. c. an increase or decrease in the population. d. a change in the price of that good. e. a change in the price of substitute goods.