Problem_Set_4

# Problem_Set_4 - Economics 2 Prob le m Set IV Practice Only...

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Economics 2 Problem Set IV Practice Only I. Multiple Choice Questions (Briefly explain your answers) 1. Suppose Ginger is going to buy a house and a dishwasher. Assuming that the marginal cost of searching for both is the same, one can predict that Ginger will a. spend more time searching for the house than the dishwasher. b. spend more time searching for the dishwasher than the house. c. spend equal amounts of time searching for the dishwasher and the house. d. trust the information from her real estate agent but not from the dishwasher salesperson. e. trust the information from the dishwasher salesperson but not from the real estate agent. 2. Suppose Justin takes a gamble with a probability of 30% that one wins \$700 and a 70% probability of losing \$300. Brian rejects this gamble. One can infer that a. both Justin and Brian are risk averse. b. both Justin and Brian are risk neutral. c. neither Justin nor Brian are risk averse. d. Justin is risk averse and Brian is risk neutral. e. Brian is risk averse and Justin is risk neutral. 3. Insurance companies practice statistical discrimination because a. it is a legal way to discriminate. b. demand for insurance is very inelastic. c. it provides the best information available about the likelihood of a claim. d. it provides perfect information about the likelihood of a claim. e. men are willing to pay more for insurance than women. 4. In general, the presence of insurance against the negative outcome of an event (e.g. fire insurance) tends to a. lessen the likelihood or the event. b. have no effect on the likelihood of the event. c.

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## This note was uploaded on 12/26/2009 for the course ECON ECON 2 taught by Professor Hamilton during the Spring '09 term at UCSD.

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Problem_Set_4 - Economics 2 Prob le m Set IV Practice Only...

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