final study guide

final study guide - Chapter 22 -Risk (Lotteries, Risk...

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Chapter 22 -Risk (Lotteries, Risk Aversion, Risk Neutral) Lotteries- for risk lovers Risk Aversion- willing to pay a premium (insurance) Accounting Profit- total revenue minus explicit costs Economic Profit- total revenue minus explicit & implicit costs (OC) -Positive and Negative Time Preferences Positive- desire to have more money in the short-run Negative- desire to have more money in the long-run -Types of businesses (Positives, Negatives, Compositions) -Problems with asymmetric information (moral hazard, principal agent, adverse selection) Asymmetric Info- information possessed by one side of a transaction but not the other Adverse Selection - circumstances that arises in financial markets when those who are the worst risks are the ones most likely to be involved in the transaction Moral Hazard - a problem that occurs b/c of change in behavior after a transaction (or policy) is completed Principal Agent Problem - the conflict of interest that occurs when agents, mgrs. of firms, pursue
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final study guide - Chapter 22 -Risk (Lotteries, Risk...

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