You sign a contract to pay $1000 next year for the refrigerator you bought today. The rate of inflation is 10% and the real interest rate is 7%. Alternatively, you could pay $875 today. What should you do to save the most money?
What will be an ideal response?
1000/[(1 + .1 ) ? (1 + .07)] = $849.60. This is the real present value of the $1000 payment next year. Thus, you should pay next year and not today in order to save the most money.
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Graphing the data in the above table with the number of workers on the horizontal axis and the average cost on the vertical axis, the graph would show
A) first a negative and then a positive relationship. B) a horizontal line. C) no relationship. D) a linear relationship.
You enter a store and buy a bottle of soda. Do you usually receive consumer surplus?
A) Yes, because you wouldn't buy the soda if your willingness to pay would be less than the price. B) Yes, because you are thirsty. C) No, because you value other drinks more. D) No, because you have less money after the transaction.
adverse selection
What will be an ideal response?
A member of a corporate board of directors that does not have a direct management role in the firm is known as
A) a shareholder. B) an inside director. C) an outside director. D) a corporate governor.