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How does a nonrival good differ from a nonexclusive good? What is the Coase Theorem, and when is it likely to be helpful in leading a market with externalities?
When do externalities require government intervention, and when is such intervention unlikely to be necessary?
What is a public good? How can one determine the optimal level of provision of a public good?
Education is often described as a good with positive externalities. Explain how education might generate positive external benefits.
How would you evaluate a proposal to ban cigarette smoking? Would a ban on smoking necessarily be economically efficient?
How much of the chemical should the market supply at the social optimum? How large is the deadweight loss from the externality?
Find the equilibrium price and quantity in a market with no government intervention. Find the socially optimal quantity of the good.
Find the level of the tax, T, that ensures the socially optimal amount of widgets will be produced in a competitive equilibrium.
What is the most the household would be willing to pay for this insurance policy? How does your answer relate to concept of risk premium discussed in the text?
If your utility function has the formula 100I - 0.0001I2, determine the risk premium associated with this lottery.
You have a utility function given by U = 10 lnI. where I represents the monetary payoff from an investment. What is the risk premium for this lottery?
Sketch this utility function. What is the expected value of each lottery? Which lottery do you prefer? Are you risk averse, risk neutral, or risk loving?
Write down the equation of a utility function that corresponds to a risk-neutral decision maker.
Consider two lotteries. The outcome of each lottery is the same: 1, 2, 3, 4, 5, or 6. In the first lottery each outcome. Which lottery has the higher variance?
Compute the expected value and variance of this lottery. Why does the second lottery have a smaller variance?
Describe the person so the reader has a dominant impression of him or her. Work in quotes from your subject as necessary.
How would you value the goodwill that is obtained in this way?
You are asked by a local newspaper to outline a formula for making your local government "better and cheaper" for its citizens.
What does the term ‘shadow economy' mean? How does the shadow economy affect GDP in different countries?
Compute the expected value of the lottery. Compute the variance and the standard deviation of the lottery.
What is the winner's curse? Why can the winner's curse arise in a common-values auction but not in a private-values auction?
Why does perfect information have value, even for a risk-neutral decision maker?
What is fair insurance? Why will a risk-averse consumer always be willing to buy full insurance that is fair?
What is a risk premium? What determines the magnitude of the risk premium? What lottery would a risk-averse decision maker prefer?
Explain why diminishing marginal utility implies that a decision maker will be risk averse.