US21L2
1
As wealth increases, _____________________.
total utility increases and marginal utility of wealth diminishes
marginal utility of wealth decreases then increases
total utility and marginal utility of wealth increase
the slope of the utility of wealth curve increases
2
When faced with uncertainty, people choose the action that maximizes their __________________.
expected utility
marginal utility
total utility
average utility
3
People buy insurance because they can reduce their risk at a price that is _______________.
less than the maximum amount that they would be willing to pay for the insurance
equal to the value of the insured asset
greater than the maximum amount that they would be willing to pay for the insurance
to their benefit but not to the benefit of the insurance company
4
According to the optimal-search rule, buyers search for a lower price until the _______ of additional search equals the _______ of search.
expected marginal benefit; marginal cost
expected total benefit; total cost
marginal benefit; marginal cost
expected average benefit; average cost
5
Advertising a good can decrease its price, but advertising does not ________________.
decrease competition
enable firms to increase output and reap economies of scale
increase competition
inform potential buyers about alternative sources of supply
6
A used car with a warranty is an example of __________________.
a signal
adverse selection
a used car dealer with integrity
private information
7
All the following items allow markets to function in spite of moral hazard and adverse selection except __________.
hourly salaries
signals
warranties
incentive payments
8
The more rapidly a person's marginal utility of wealth diminishes, the more _______ that person is.
risk averse
risk neutral
risk loving
risky
9
In an efficient market, _____________________.
no one can predictably make a profit
profits can be forecasted
the price of a share moves slowly to its expected future price
prices are not volatile
10
The stock market is an efficient market. If the price of a stock is expected to rise, people will _______ the stock and the price _______.
buy; will rise until it reaches it expected level
sell; might fall and the sellers will have minimized their losses.
buy; will rise but not necessarily to the expected level
buy; might fall but this does not matter if the buyers have diversified.
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