Ashwini is thinking of buying travel insurance (which pays her if she needs to cancel her trip) for her trip to Cancun over spring break. There is a 5 percent chance that she will need to cancel her trip
Without insurance she would lose the full $2,000 price of the trip; with insurance she would get a full refund of $2,000. The premium for this insurance is $105. Which of the following is CORRECT? I. The expected value of Ashwini's loss is $100. II. If Ashwini is risk averse she is willing to buy the insurance only if its price is less than $100. A) I only
B) II only
C) I and II
D) neither I nor II
A
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Suppose that when the price of ice cream increases, Liza decreases her purchase of hot fudge. To Liza,
A) ice cream and hot fudge and substitutes. B) ice cream is a normal good and hot fudge is an inferior good. C) ice cream and hot fudge are normal goods. D) ice cream and hot fudge are complements.
Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. If the price of loose-leaf tea rises from $3 to $4, the market quantity demanded would
A) decrease by 32 lbs. B) increase by 64 lbs. C) decrease by 64 lbs. D) increase by 32 lbs.