test2_2009 - ECO2003F: INTERMEDIATE MICROECONOMICS TEST 2...

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ECO2003F: INTERMEDIATE MICROECONOMICS TEST 2 20 April 2009 z This test is comprised of 20 multiple choice questions and has 7 pages including the cover page. z Questions that are correctly answered will earn you 4 marks, while each incorrectly answered question attracts a penalty of 1 negative mark. z In all of the cases below, choose the MOST correct answer
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1. The utility function of wealth for a risk-seeker has (A) an increasing slope as wealth rises (B) a decreasing slope as wealth rises (C) a constant slope as wealth rises (D) a concave shape (E) both (B) and (D) are correct 2. We can be sure that a person is risk averse if (A) he accepts a fair gamble only (B) he accepts a gamble that has a zero expected value (C) he accepts a gamble that has a negative expected value (D) his utility derived from a guaranteed income is greater than the utility derived from gambling income with the same expected value as the guaranteed income (E) None of the above 3. Competitive pressure in the insurance market will, in general, (A) Make insurance premiums unattractive to drivers who are much riskier than average (B) Make insurance premiums attractive to low risk drivers (C) Induce risky drivers to self-insure (D) Induce the least risky drivers to self-insure (E) Both (A) and (C) are correct 4. John purchases an insurance policy on his squash racquet. He then proceeds to hit his racquet against the wall every time he loses a point. This is an example of (A) An adverse selection problem (B) Signaling (C) A moral hazard problem (D) Self-insurance (E) None of the above
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5. If you were to behave according to the rational choice model, when confronted with a loss of R25 on the same day in which you receive an unexpected gift of R25 you would (A) Value the loss of R25 more heavily than the gain of R25 (B) Discount the loss and value the gain so that you feel you have gained welfare (C)
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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test2_2009 - ECO2003F: INTERMEDIATE MICROECONOMICS TEST 2...

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