For each of the following statements, state whether the statement is true, false, or uncertain and explain why
i. A risk neutral person is indifferent to a gamble and the expected value of the gamble.
ii. A risk-averse person will never accept a gamble.
iii. A risk-loving person will accept any gamble.
i. True, the expected utility of a gamble equals the utility of the expected value for a R.N. individual.
ii. False, a risk averse person will not accept a "fair" gamble (or worse) but *may* accept a gamble with a positive expected value.
iii. False, a risk loving individual will accept any fair gamble, but if the expected value is sufficiently negative, they will not accept the gamble.
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If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
A) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden. B) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter. C) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter. D) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.
Suppose the interest rate is 5 percent. Consider three payment options: 1 . $500 today. 2 . $520 one year from today. 3 . $550 two years from today. Which of the following is correct?
a. 1 has the lowest present value and 3 has the highest. b. 2 has the lowest present value and 1 has the highest. c. 3 has the lowest present value and 2 has the highest. d. None of the above is correct.
In a typical year, about what percentage of the world’s output is traded in international markets?
a. 85% b. 55% c. 35% d. 15%
Which one of the following is a normative economic statement?
A. The unemployment rate fell for the fourth straight month, reflecting the effects from stronger economic growth in the second quarter B. The worsening balance of trade must be corrected if this nation is to remain competitive in the world economy C. Consumer prices are rising at a faster rate than in past months, indicating a renewal of inflationary pressures on the economy D. To help balance the Federal budget, Congress increased the tax on gasoline to its highest level in the past ten years