Q&A Hero

Q: John Brown's utility of income function is U = log(I+1), where I represents income. From this information you can say that A) John Brown is risk neutral. B) John Brown is risk loving. C) John Brown is risk averse. D) We need more information before we can determine John Brown's preference for risk.

Q: The concept of a risk premium applies to a person that isA) risk averse.B) risk neutral.C) risk loving.D) all of the above

Q: Figure 5.1An individual whose attitude toward risk is illustrated in Figure 5.1 isA) risk averse.B) risk loving.C) risk neutral.D) None of the above is necessarily correct.

Q: Figure 1 In Figure 5.1, the marginal utility of income is A) increasing as income increases. B) constant for all levels of income. C) diminishes as income increases. D) None of the above is necessarily correct.

Q: An individual with a constant marginal utility of income will be A) risk averse. B) risk neutral. C) risk loving. D) insufficient information for a decision

Q: A person with a diminishing marginal utility of income A) will be risk averse. B) will be risk neutral. C) will be risk loving. D) cannot decide without more information

Q: Other things equal, expected income can be used as a direct measure of well-being A) always. B) no matter what a person's preference to risk. C) if and only if individuals are not risk-loving. D) if and only if individuals are risk averse. E) if and only if individuals are risk neutral.

Q: Scenario 5.5:Engineers at Jalopy Automotive have discovered a safety flaw in their new model car. It would cost $500 per car to fix the flaw, and 10,000 cars have been sold. The company works out the following possible scenarios for what might happen if the car is not fixed, and assigns probabilities to those events:Scenario Probability CostA. No one discovers flaw .15 $0B. Government fines firm .40 $10 million (no lawsuits)C. Resulting lawsuits are lost .30 $12 million (no government fine)D. Resulting lawsuits are won .15 $2 million (no government fine)Refer to Scenario 5.5. Jalopy Automotive's executives,A) if risk-neutral, would fix the flaw because it enables them to have a sure outcome.B) if risk-neutral, would fix the flaw because the cost of fixing the flaw is less than the expected cost of not fixing it.C) if risk-loving, would fix the flaw because it enables them to have a sure outcome.D) if risk-averse, would not fix the flaw because the cost of fixing the flaw is more than the expected cost of not fixing it.E) would fix the flaw regardless of their risk preference, because of the large probability of high-cost outcomes.

Q: Scenario 5.5:Engineers at Jalopy Automotive have discovered a safety flaw in their new model car. It would cost $500 per car to fix the flaw, and 10,000 cars have been sold. The company works out the following possible scenarios for what might happen if the car is not fixed, and assigns probabilities to those events:Scenario Probability CostA. No one discovers flaw .15 $0B. Government fines firm .40 $10 million (no lawsuits)C. Resulting lawsuits are lost .30 $12 million (no government fine)D. Resulting lawsuits are won .15 $2 million (no government fine)Refer to Scenario 5.5. Which of the following statements is true?A) The expected cost of not fixing the car is less than the cost of fixing it.B) The expected cost of not fixing the car is greater than the cost of fixing it.C) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are subjective.D) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are not equal.

Q: Scenario 5.5:Engineers at Jalopy Automotive have discovered a safety flaw in their new model car. It would cost $500 per car to fix the flaw, and 10,000 cars have been sold. The company works out the following possible scenarios for what might happen if the car is not fixed, and assigns probabilities to those events:Scenario Probability CostA. No one discovers flaw .15 $0B. Government fines firm .40 $10 million (no lawsuits)C. Resulting lawsuits are lost .30 $12 million (no government fine)D. Resulting lawsuits are won .15 $2 million (no government fine)Refer to Scenario 5.5. The expected cost to the firm if it does not fix the car isA) $0.B) $24 million.C) $7.9 million.D) $2 million.E) $3.6 million.

Q: Assume that two investment opportunities have identical expected values of $100,000. Investment A has a variance of 25,000, while investment B's variance is 10,000. We would expect most investors (who dislike risk) to prefer investment opportunity A) A because it has less risk. B) A because it provides higher potential earnings. C) B because it has less risk. D) B because of its higher potential earnings.

Q: Calculate the expected value of the following game. If you win the game, your wealth will increase by 100,000,000 times your wager. If you lose, you lose your wager amount. The probability of winning is .

Q: Calculate the expected value of the following game. If you win the game, your wealth will increase by 36 times your wager. If you lose, you lose your wager amount. The probability of winning is 1/38 Calculate the variance of the game.

Q: C and S Metal Company produces stainless steel pots and pans. C and S can pursue either of two distribution plans for the coming year. The firm can either produce pots and pans for sale under a discount store label or manufacture a higher quality line for specialty stores and expensive mail order catalogs. High initial setup costs along with C and S's limited capacity make it impossible for the firm to produce both lines. Profits under each plan depend upon the state of the economy. One of three conditions will prevail:growth (probability = 0.3)normal (probability = 0.5)recession (probability = 0.2)The outcome under each plan for each state of the economy is given in the table below. Figures in the table are profits measured in dollars. The probabilities for each economic condition represent crude estimates. Economic Condition Discount Line Specialty Line Growth 250,000 400,000 Normal 220,000 230,000 Recession 140,000 20,000a. Calculate the expected value for each alternative.b. Which alternative is more risky? (Calculate the standard deviation of profits for each alternative.)c. Taking into account the importance of risk, which alternative should an investor choose?

Q: John Smith is considering the purchase of a used car that has a bank book value of $16,000. He believes that there is a 20% chance that the car's transmission is damaged. If the transmission is damaged, the car would be worth only $12,000 to Smith. What is the expected value of the car to Smith?

Q: Tom Wilson is the operations manager for BiCorp, a real estate investment firm. Tom must decide if BiCorp is to invest in a strip mall in a northeast metropolitan area. If the shopping center is highly successful, after tax profits will be $100,000 per year. Moderate success would yield an annual profit of $50,000, while the project will lose $10,000 per year if it is unsuccessful. Past experience suggests that there is a 40% chance that the project will be highly successful, a 40% chance of moderate success, and a 20% probability that the project will be unsuccessful.a. Calculate the expected value and standard deviation of profit.b. The project requires an $800,000 investment. If BiCorp has an 8% opportunity cost on invested funds of similar riskiness, should the project be undertaken?

Q: To optimally deter crime, law enforcement authorities should: A) set higher fines for crimes that have a lower probability of being caught. B) set the fine equal to the expected benefit, even if it is difficult to catch the offenders. C) ignore the probabilities of catching offenders and attempt to prevent crime at all costs. D) set very high fines regardless of the probability that an offender is caught.

Q: People often use probability statements to describe events that can only happen once. For example, a political consultant may offer their opinion about the probability that a particular candidate may win the next election. Probability statements like these are based on ________ probabilities. A) frequency-based B) objective C) subjective D) universally known

Q: Use the following statements to answer this question: I. Subjective probabilities are based on individual perceptions about the relative likelihood of an event. II. To be useful in microeconomic analysis, all interested parties should agree on the values of the relevant subjective probabilities for a particular problem. A) I and II are true. B) I is true and II is false. C) II is true and I is false. D) I and II are false.

Q: Blanca has her choice of either a certain income of $20,000 or a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. The expected value of the gamble: A) is less than $20,000. B) is $20,000. C) is greater than $20,000. D) cannot be determined with the information provided.

Q: Scenario 5.4:Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and pay-offs are given below:OutcomeProbabilityPay-offsA.3$100B?50C.2?The expected value of the investment is $25. Although all the information is correct, information is missing.Refer to Scenario 5.4. What is the standard deviation of the investment?A) 0B) 16.58C) 56.12D) 90.14E) none of the above

Q: Scenario 5.4: Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and pay-offs are given below: Outcome Probability Pay-offs A .3 $100 B ? 50 C .2 ? The expected value of the investment is $25. Although all the information is correct, information is missing. Refer to Scenario 5.4. What is the variance of the investment? A) -75 B) 275 C) 3,150 D) 4,637.50 E) 8,125

Q: Scenario 5.4: Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and pay-offs are given below: Outcome Probability Pay-offs A .3 $100 B ? 50 C .2 ? The expected value of the investment is $25. Although all the information is correct, information is missing. Refer to Scenario 5.4. What is the deviation of outcome A? A) 30 B) 50 C) 75 D) 100

Q: Scenario 5.4: Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and pay-offs are given below: Outcome Probability Pay-offs A .3 $100 B ? 50 C .2 ? The expected value of the investment is $25. Although all the information is correct, information is missing. Refer to Scenario 5.4. What is the pay-off of outcome C? A) -150 B) 0 C) 25 D) 100 E) 150

Q: Scenario 5.4:Suppose an individual is considering an investment in which there are exactly three possible outcomes, whose probabilities and pay-offs are given below:OutcomeProbabilityPay-offsA.3$100B?50C.2?The expected value of the investment is $25. Although all the information is correct, information is missing.Refer to Scenario 5.4. What is the probability of outcome B?A) 0B) -0.5C) 0.5D) 0.4E) 0.2

Q: An investment opportunity has two possible outcomes. The expected value of the investment opportunity is $250. One outcome yields a $100 payoff and has a probability of 0.25. What is the payoff of the other outcome? A) -$400 B) $0 C) $150 D) $300 E) none of the above

Q: An investment opportunity is a sure thing; it will pay off $100 regardless of which of the three possible outcomes comes to pass. The variance of this investment opportunity: A) is 0. B) is 1. C) is 2. D) is -1. E) cannot be determined without knowing the probabilities of each of the outcomes.

Q: The variance of an investment opportunity: A) cannot be negative. B) has the same unit of measure as the variable from which it is derived. C) is a measure of central tendency. D) is unrelated to the standard deviation.

Q: An investment opportunity has two possible outcomes, and the value of the investment opportunity is $250. One outcome yields a $100 payoff and has a probability of 0.25. What is the probability of the other outcome?A) 0B) 0.25C) 0.5D) 0.75E) 1.0

Q: The expected value of a project is always the A) median value of the project. B) modal value of the project. C) standard deviation of the project. D) weighted average of the outcomes, with probabilities of the outcomes used as weights.

Q: Which of the following is NOT a generally accepted measure of the riskiness of an investment? A) Standard deviation B) Expected value C) Variance D) none of the above

Q: The weighted average of all possible outcomes of a project, with the probabilities of the outcomes used as weights, is known as the A) variance. B) standard deviation. C) expected value. D) coefficient of variation.

Q: Assume that one of two possible outcomes will follow a decision. One outcome yields a $75 payoff and has a probability of 0.3; the other outcome has a $125 payoff and has a probability of 0.7. In this case the expected value is A) $85. B) $60. C) $110. D) $35.

Q: The expected value is a measure of A) risk. B) variability. C) uncertainty. D) central tendency.

Q: Table 5.4 Job Outcome 1 Deviation Outcome 2 Deviation A $40 W $60 X B $20 Y $50 Z Refer to Table 5.4. If outcomes 1 and 2 are equally likely at Job A, and if at Job B the $20 outcome occurs with probability .1, and the $50 outcome occurs with probability .9, then A) Job A is safer because the difference in the probabilities is lower. B) Job A is riskier only because the expected value is lower. C) Job A is riskier because the standard deviation is higher. D) Job B is riskier because the difference in the probabilities is higher. E) There is no definite way given this information to tell how risky the two jobs are.

Q: Table 5.4 Job Outcome 1 Deviation Outcome 2 Deviation A $40 W $60 X B $20 Y $50 Z Refer to Table 5.4. If at Job B the $20 outcome occurs with probability .2, and the $50 outcome occurs with probability .8, then the standard deviation of payoffs at Job B is nearest which value? A) $10 B) $12 C) $20 D) $35 E) $44

Q: Table 5.4 Job Outcome 1 Deviation Outcome 2 Deviation A $40 W $60 X B $20 Y $50 Z Refer to Table 5.4. If at Job B the $20 outcome occurs with probability .2, and the $50 outcome occurs with probability .8, then in absolute value A) Y = Z = $6. B) Y = Z = $24. C) Y = Z = $35. D) Y = $24; Z = $6. E) Y = $6; Z = $24.

Q: Table 5.4 Job Outcome 1 Deviation Outcome 2 Deviation A $40 W $60 X B $20 Y $50 Z Refer to Table 5.4. If outcomes 1 and 2 are equally likely at Job A, then the standard deviation of payoffs at Job A is A) $1. B) $10. C) $40. D) $50. E) $60.

Q: Table 5.4 Job Outcome 1 Deviation Outcome 2 Deviation A $40 W $60 X B $20 Y $50 Z Refer to Table 5.4. If outcomes 1 and 2 are equally likely at Job A, then in absolute value A) W = X = $10. B) W = X = $20. C) W = Y = $100. D) W = Y = $200. E) W = Y = $300.

Q: What is the advantage of the standard deviation over the average deviation? A) Because the standard deviation requires squaring of deviations before further computation, positive and negative deviations do not cancel out. B) Because the standard deviation does not require squaring of deviations, it is easy to tell whether deviations are positive or negative. C) The standard deviation removes the units from the calculation, and delivers a pure number. D) The standard deviation expresses the average deviation in percentage terms, so that different choices can be more easily compared. E) The standard deviation transforms subjective probabilities into objective ones so that calculations can be performed.

Q: As president and CEO of MegaWorld industries, you must decide on some very risky alternative investments: Project Profit if Successful Probability of Success Loss if Failure Probability of Failure A $10 million .5 -$6 million .5 B $50 million .2 -$4 million .8 C $90 million .1 -$10 million .9 D $20 million .8 -$50 million .2 E $15 million .4 $0 .6 The highest expected return belongs to investment A) A. B) B. C) C. D) D.

Q: Upon graduation, you are offered three jobs.CompanySalaryBonusProbability of Receiving BonusSamsa Exterminators100,00020,000.90Gradgrind Tech100,00030,000.70Goblin Fruits115,000---------------Rank the three job offers in terms of expected income, from the highest to the lowest.A) Samsa Exterminators, Gradgrind Tech, Goblin FruitsB) Samsa Exterminators, Goblin Fruits, Gradgrind TechC) Gradgrind Tech, Samsa Exterminators, Goblin FruitsD) Gradgrind Tech, Goblin Fruits, Samsa ExterminatorsE) Goblin Fruits, Samsa Exterminators, Gradgrind Tech

Q: The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict. Table 5.3Outcome 1Outcome 2Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000Refer to Table 5.3. Rank the doctor's job choices in order, least risky first.A) Work for HMO, open own practice, do researchB) Work for HMO, do research, open own practiceC) Do research, open own practice, work for HMOD) Do research, work for HMO, open own practiceE) Open own practice, work for HMO, do research

Q: The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict. Table 5.3Outcome 1Outcome 2Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000Refer to Table 5.3. In order to weigh which of the job choices is riskiest, an individual should look atA) the deviation, which is the difference between the probabilities of the two outcomes.B) the deviation, which is the difference between the dollar amounts of the two outcomes.C) the average deviation, which is found by averaging the dollar amounts of the two outcomes.D) the standard deviation, which is the square root of the average squared deviation.E) the standard deviation, which is the squared average square root of the deviation.

Q: The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict. Table 5.3Outcome 1Outcome 2Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000In Table 5.3, the standard deviation isA) highest for the HMO choice, and it is $76,000.B) lowest for the HMO choice.C) higher for owning one's own practice than for going into research.D) higher for the HMO choice than for going into research.

Q: The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict. Table 5.3Outcome 1Outcome 2Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000Refer to Table 5.3. Rank the doctor's job options in expected income order, highest first.A) Work for HMO, open own practice, do research.B) Work for HMO, do research, open own practice.C) Do research, open own practice, work for HMO.D) Do research, work for HMO, open own practice.E) Open own practice, work for HMO, do research.

Q: The information in the table below describes choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict. Table 5.3Outcome 1Outcome 2Job ChoiceProb.IncomeProb.IncomeWork for HMO0.95$100,0000.05$60,000Own practice0.2$250,0000.8$30,000Research0.1$500,0000.9$50,000Refer to Table 5.3. The expected returns are highest for the physician whoA) works for an HMO.B) opens her own practice.C) does research.D) either opens her own practice or does research.E) either works for an HMO or does research.

Q: Scenario 5.3:Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:CompanyGood Year RevenueBad Year RevenueNumber of Good YearsWhizbo$8 million$6 million8Yowzo$10 million$4 million4Zowiebo$30 million$1 million1Refer to Scenario 5.3. The expected revenue from all three companies combined isA) $11 millionB) $17.9 million.C) $25.5 million.D) $29.5 million.E) $48 million.

Q: Scenario 5.3:Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance:CompanyGood Year RevenueBad Year RevenueNumber of Good YearsWhizbo$8 million$6 million8Yowzo$10 million$4 million4Zowiebo$30 million$1 million1Refer to Scenario 5.3. Based on the 10 years' past performance, rank the companies' expected revenue, highest to lowest:A) Whizbo, Yowzo, ZowieboB) Whizbo, Zowiebo, YowzoC) Zowiebo, Yowzo, WhizboD) Zowiebo, Whizbo, YowzoE) Zowiebo, with Whizbo and Yowzo tied for second

Q: Scenario 5.3: Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance: Company Good Year Revenue Bad Year Revenue Number of Good Years Whizbo $8 million $6 million 8 Yowzo $10 million $4 million 4 Zowiebo $30 million $1 million 1 Refer to Scenario 5.3. Based on the 10 years' past performance, what is the probability of a good year for Zowiebo? A) 30/31 B) 1/31 C) 9 D) 1

Q: Scenario 5.3: Wanting to invest in the computer games industry, you select Whizbo, Yowzo and Zowiebo as the three best firms. Over the past 10 years, the three firms have had good years and bad years. The following table shows their performance: Company Good Year Revenue Bad Year Revenue Number of Good Years Whizbo $8 million $6 million 8 Yowzo $10 million $4 million 4 Zowiebo $30 million $1 million 1 Refer to Scenario 5.3. Where is the highest expected revenue, based on the 10 years' past performance? A) Whizbo B) Yowzo C) Zowiebo D) Whizbo and Yowzo E) Yowzo and Zowiebo

Q: Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1MajorProbability of Receiving an Offer in One YearAverage Salary OfferAccounting.95$25,000Economics.90$30,000English.70$24,000Poli Sci.60$18,000Mathematics1.00$21,000Refer to Table 5.1. Ranked highest to lowest in expected income, the majors areA) economics, accounting, English, mathematics, political science.B) mathematics, English, political science, accounting, economics.C) economics, accounting, mathematics, English, political science.D) English, economics, mathematics, accounting, political science.E) accounting, English, mathematics, political science, economics.

Q: Consider the following information about job opportunities for new college graduates in Megalopolis:Table 5.1MajorProbability of Receiving an Offer in One YearAverage Salary OfferAccounting.95$25,000Economics.90$30,000English.70$24,000Poli Sci.60$18,000Mathematics1.00$21,000Refer to Table 5.1. Expected income for the first year isA) highest in accounting.B) highest in mathematics.C) higher in English than in mathematics.D) higher in political science than in economics.E) highest in economics.

Q: Scenario 5.2: Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability. Refer to Scenario 5.2. Samantha's expected expense for her car is A) $20,000. B) $19,000. C) $18,000. D) $17,500. E) $15,000.

Q: Scenario 5.2: Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability. Refer to Scenario 5.2. Randy's expected expense for his car is A) $20,000. B) $19,000. C) $18,000. D) $17,500. E) $15,000.

Q: Scenario 5.2: Randy and Samantha are shopping for new cars (one each). Randy expects to pay $15,000 with 1/5 probability and $20,000 with 4/5 probability. Samantha expects to pay $12,000 with 1/4 probability and $20,000 with 3/4 probability. Refer to Scenario 5.2. Which of the following is true? A) Randy has a higher expected expense than Samantha for the car. B) Randy has a lower expected expense than Samantha for the car. C) Randy and Samantha have the same expected expense for the car, and it is somewhat less than $20,000. D) Randy and Samantha have the same expected expense for the car: $20,000. E) It is not possible to calculate the expected expense for the car until the true probabilities are known.

Q: Scenario 5.1: Aline and Sarah decide to go into business together as economic consultants. Aline believes they have a 50-50 chance of earning $200,000 a year, and that if they don't, they'll earn $0. Sarah believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000. Refer to Scenario 5.1. The probabilities discussed in the information above are A) objective because they are single numbers rather than ranges. B) objective because they have been explicitly articulated by the individuals involved. C) objective because the event hasn't happened yet. D) subjective because the event hasn't happened yet. E) subjective because they are estimates made by individuals based upon personal judgment or experience.

Q: Scenario 5.1: Aline and Sarah decide to go into business together as economic consultants. Aline believes they have a 50-50 chance of earning $200,000 a year, and that if they don't, they'll earn $0. Sarah believes they have a 75% chance of earning $100,000 and a 25% chance of earning $10,000. Refer to Scenario 5.1. The expected value of the undertaking, A) according to Sarah, is $75,000. B) according to Sarah, is $100,000. C) according to Sarah, is $110,000. D) according to Aline, is $200,000. E) according to Aline, is $100,000.

Q: Luxury brands like designer sunglasses are goods that may exhibit snob effects. Suppose this is true, and the price for a particular brand increases. What happens to the component changes in the quantity demanded? A) Pure price effect and snob effect are negative B) Pure price effect and snob effect are positive C) Pure price effect is positive, snob effect is negative D) Pure price effect is negative, snob effect is positive

Q: Some luxury product manufacturers will purposefully raise prices on their goods in order to reduce sales volume. This strategy may successfully increase sales revenue if the luxury goods are subject to the ________ effect and have relatively ________ demand. A) bandwagon, elastic B) bandwagon, inelastic C) snob, elastic D) snob, inelastic

Q: Use the following statements to answer this question: I. A network externality is a situation in which each individual's demand depends on the purchases of other buyers. II. Network externalities are mainly positive effects resulting from the actions of others, while ordinary externalities are mainly negative effects resulting from the actions of others. A) I and II are true. B) I is true and II is false. C) I is false and II is true. D) I and II are false.

Q: Due to the bandwagon effect, demand for some products is ________ elastic than it would be without the positive network externality. A) more B) less C) equally D) more strongly unitary

Q: Which of the following goods may have demand that is potentially affected by the bandwagon effect? A) Satellite radio B) Cellular telephones C) High-definition (HD) televisions D) Electronic book readers E) all of the above

Q: As more and more firms have acquired fax machines, the fax machine has become a standard means of business communication. The increase in demand for fax machines for business communication: A) is an example of the snob effect. B) proves that the fax machine is an inferior good. C) proves that the fax machine is a luxury good. D) is an example of a positive network externality. E) is an example of a negative network externality.

Q: When the snob effect exists, a change in price is likely to A) change total revenue less than if there were no network externalities. B) change total revenue more than if there were no network externalities. C) change total revenue the same amount as if there were no network externalities. D) not change total revenue at all.

Q: When the bandwagon effect exists, a change in price is likely to A) change total revenue less than if there were no network externalities. B) change total revenue more than if there were no network externalities. C) change total revenue the same amount as if there were no network externalities. D) not change total revenue at all.

Q: The snob effect corresponds best to a A) negative network externality. B) Giffen good. C) positive network externality. D) bandwagon effect.

Q: Which of these is an example of a negative network externality?A) Bandwagon effectB) PollutionC) Snob effectD) Two-part tariff

Q: The bandwagon effect corresponds best to which of the following? A) Snob effect B) External economy C) Negative network externality D) Positive network externality

Q: When negative network externalities are present A) the demand curve is more elastic than otherwise. B) the demand curve is less elastic than otherwise. C) the demand curve shifts to the right. D) the demand curve shifts to the left.

Q: The market supply curve of rubber erasers is given by QS = 35,000 + 2,000P. The demand for rubber erasers can be segmented into two components. The first component is the demand for rubber erasers by art students. This demand is given by qA = 17,000 - 250P. The second component is the demand for rubber erasers by all others. This demand is given by qO = 25,000 - 2000P. Derive the total market demand curve for rubber erasers. Find the equilibrium market price and quantity. Also, determine the consumer surplus for each component of demand.

Q: The wheat market is perfectly competitive, and the market supply and demand curves are given by the following equations: QD = 20,000,000 - 4,000,000P QS = 7,000,000 + 2,500,000P, where QD and QS are quantity demanded and quantity supplied measured in bushels, and P = price per bushel. a. Determine consumer surplus at the equilibrium price and quantity. b. Assume that the government has imposed a price floor at $2.25 per bushel and agrees to buy any resulting excess supply. How many bushels of wheat will the government be forced to buy? Determine consumer surplus with the price floor.

Q: Adriana is in charge of setting the price on basketball tickets for the local team's home games. From previous experience, she has estimated demand to be P = 50 - 0.00166Q, where P represents price in dollars per seat, and Q represents seats that could be sold per game. The seating capacity is 25,000 seats. Determine the number of tickets that would be sold at a ticket price of $15 each. Also, determine the consumer surplus that could be absorbed from these consumers if Adriana were able to set ticket prices so that each customer (who values the ticket at least at $15) pays the entirety of his or her actual valuation of the ticket.

Q: Ronald's monthly demand for Cap Rock Chardonnay is given by Q = 6 + () (I - T) - P, where I is Ronald's monthly income, T is his tax expense and P is the price of Cap Rock Chardonnay. Suppose the Price of Cap Rock Chardonnay is $10, Ronald's monthly income is $15,000, and his tax expense is $5,000. Calculate how much Ronald changes his Chardonnay consumption if his taxes are increased by 20%. Also, calculate Ronald's Consumer Surplus from consuming Cap Rock Chardonnay before and after the increase in taxes.

Q: The demand curve for the daily edition of the Lubbock Avalanche Journal is D = 85,000 - 30,000P. The current price of the newspaper is $0.50. Derive the Consumer Surplus for the newspaper.

Q: The aggregate demand for good X is Q = 20 - P, and the market price is P = $8. What is the maximum amount that consumers are willing to pay for the quantity demanded at this price? A) $72 B) $96 C) $144 D) $168

Q: The aggregate demand for good X is Q = 20 - P. If the price rises from P = $4 to P = $5, what is the change in consumer surplus? A) $4.50 B) $5.50 C) $15.50 D) $16

Q: Suppose the major soft drink companies develop vending machines for canned and bottled drinks that can determine your maximum willingness-to-pay for a drink, and the machine charges you that price when you purchase a drink. If this were possible, the consumer surplus in the vended soft drink market would be: A) positive because consumer surplus equals consumer expenditures in this case. B) positive because the market demand curve is perfectly inelastic in this case. C) negative because people are not actually willing to pay their maximum value for the product. D) zero because all surplus value is captured by the seller.

Q: Consider a particular market-clearing price and quantity under a perfectly competitive equilibrium. As the demand curve at this point becomes more inelastic, the consumer surplus in the market tends to: A) increase. B) decrease. C) remain the same. D) We do not have enough information to answer this question.

Q: Suppose the market demand curve for cable internet service is completely elastic. At the market equilibrium price under perfect competition, the consumer surplus in this market equals: A) total consumer expenditures. B) total sales revenue. C) zero. D) an amount slightly more than total consumer expenditure.