Suppose a consumer's expected utility function given two possible states of nature A and B can be expressed in terms of consumption of food, 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. Which of the following gives her budget line?
A. FA = 250 - FB
B. FB = 250 - FA
C. FA = 200 - FB
D. FB = 50 - FA
B. FB = 250 - FA
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Economists have shown that the burden of a tax is the same whether the tax is collected from the buyer or the seller. Why, then, are gasoline and cigarette taxes imposed on sellers?
A) It is more difficult for buyers to keep track of their purchases, and for the government to verify that the right of amount of tax revenue is collected. B) Sellers are more honest than buyers. C) The demand for both gasoline and cigarettes is very elastic. D) The Equal Protection Clause of the U.S. Constitution prohibits the government from imposing taxes like these on buyers.
People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter_____________ and the quantity demanded for peanut butter ____________
a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain
Economists who support minimum-wage legislation are likely to believe that the
a. demand for unskilled labor is relatively inelastic. b. demand for unskilled labor is relatively elastic. c. supply of unskilled labor is relatively elastic. d. supply of unskilled labor is relatively inelastic.
If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate
a. rises and the quantity of dollars exchanged falls. b. rises and the quantity of dollars exchanged does not change. c. rises and the quantity of dollars exchanged rises. d. falls and the quantity of dollars exchanged does not change.