An annuity is a contract that makes monthly payments as long as someone lives. Explain why an individual would want to purchase such a contract. What risk is being transferred?
What will be an ideal response?
An annuity transfers the risk that the buyer will live longer than expected. If an individual had certainty regarding his/her life expectancy he/she could plan accordingly and set up a budget that would exhaust his/her wealth at the time of death. We do not usually have such certainty and the risk is that we may live longer than we expect and could run out of funds before we die. With an annuity the individual transfers this risk to a company (for a fee) who is pooling many of these individuals and with the "law of large numbers" is better equipped to take this risk.
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Answer the following questions true (T) or false (F)
1. Ceteris paribus, a real depreciation of the dollar will decrease net exports in the United States. 2. The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change. 3. Chips and salsa are complements. If the price of salsa decreases, the demand for chips will increase.
Federal antitrust laws in the United States are enforced
A) solely by the Federal Trade Commission. B) solely by the Department of Justice. C) by the Department of Justice and by the Federal Trade Commission. D) by the Department of Commerce.
When there is market failure due to a negative externality,
a. innocent people will suffer since it cannot be corrected. b. setting price equal to marginal social cost will solve it. c. the free market produces too little output. d. externalities have been taken into account. e. the best solution eliminates the externality entirely.
Supply is said to be ____ when the quantity supplied is very responsive to changes in price
a. independent b. inelastic c. unit elastic d. elastic