ECON 200 Test 3
Max lives in Boston and earns $132,500 per year. If Max decides to move to San Francisco, what annual salary will he need to make in order to maintain the same real wage?
$164,000
Your parents bought their first car for $5,000. The price level in the year your parents bought their car was 50, while the price level today is 200. Calculate how much your parents' car would have cost if they bought it today.
$20000
Suppose the current CPI is 240 and in 2002 it was 180. A pair of Levi's jeans costs $54 today. Based on the CPIs, what would you expect the 2002 price to have been for the same style of Levis, in a similar retail outlet?
$40.50 price in 02 = price today x price level in 02/price level today
$53,000 is placed in an investment account that grows at a fixed rate of 2% (compound growth) per year. How much is in the account after four years? Round your answer to the nearest whole number.
$54060 year 2 $55141 year 3 $57369 year 4
You have been entered in a free game where you try to guess the roll of a six-sided die. You will win $50.00 if you guess right. What is your expected payoff value? Round to the nearest cent.
$8.33 = 50/6
Identify the correct formulas relating two measures of economic growth.
%change of real GDP % change of nominal GDP - % changes of price or %change of real per capita GDP = % change real GDP - % change of population
Suppose the consumer price index for one year was 120 and for the next year it was 132. What is the corresponding inflation rate?
10% (132-120) / 120 x 100 = 10%
Assume Country X has the following statistics: Total relevant population = 50,000,000 Full-time students = 4,200,000 Not employed and not currently searching for jobs = 6,000,000 Not employed and currently searching for jobs = 2,336,000 Currently employed = 29,664,000 Country X has a labor force of -, a labor force participation rate of -, and an unemployment rate of -.
32,000,000 64% 7.3%
Last year you paid $24 for a round of golf and $12 to rent a golf cart. This year it cost you $30 to golf and $15 to rent a cart. Based on this simple basket of goods, calculate a price index for this year using last year as the base year.
45/36 x 100 = 125
Suppose that in 2014, Brazil's economic growth rate has dropped to 1.4%. Use the rule of 70 to estimate how long it would take for real per capita GDP to double.
70/x = 50 years
A country has a non-institutionalized civilian adult population of 263 million. Out of that number: 85 million are students, homemakers, retirees, etc. 11 million are discouraged workers. 122 million are employed full-time. 30 million are employed part-time. 15 million are out of work and actively looking for work. What is the unemployment rate? Round to one decimal place.
9%
Which of the following scenarios could lead to inflation? The population of a nation decreases. The quantity of goods and services in the economy increases by 2% while the supply of money increases by 4%. The government prints $500 million in new currency to pay off foreign debts. The supply of money decreases.
Correct: The quantity of goods and services in the economy increases by 2% while the supply of money increases by 4%. The government prints $500 million in new currency to pay off foreign debts. Incorrect: The population of a nation decreases. The supply of money decreases.
What is the definition of an institution?v
A significant practice relationship, or organization
Why might the prices of some products decrease while others increase?
Advances i technology typically cause the price of some goods to decrease over time
Although institutions are often associated with a physical representative (like the Supreme Court building), the essence of an institution is a set of expectations and - that shape the - in which -.
Although institutions are often associated with a physical representative (like the Supreme Court building), the essence of an institution is a set of expectations and practices that shape the environment in which decisions.
How do non-market goods cause inaccuracies in measuring the productivity of a nation?
An economy with many non-market goods may have its output underrated.
Match each form of unemployment with an example. Note that every item may not have a match. An unemployed paper mill worker. The local paper mill shut down due to lack of demand for paper products in a digital age. An unemployed banker during a recession. The banker would be hired back once the economy began growing normally again. An unemployed stockbroker who is taking some time off before looking for a new job. An unemployed cashier. A small clothing store shut down due to its customers buying clothes from a new big-box retailer. A retiree. After a successful career in real estate, she now lives off her retirement savings and Social Security.
An unemployed paper mill worker. The local paper mill shut down due to lack of demand for paper products in a digital age. Structural unemployment An unemployed banker during a recession. The banker would be hired back once the economy began growing normally again. Cyclical unemployment An unemployed stockbroker who is taking some time off before looking for a new job. Cyclical unemployment An unemployed cashier. A small clothing store shut down due to its customers buying clothes from a new big-box retailer. Frictional unemployment A retiree. After a successful career in real estate, she now lives off her retirement savings and Social Security. Frictional unemployment
Apply the correct label to each inflation-related problem. Labels may be used more than once. Because of extremely high inflation, David makes small weekly cash withdrawals instead of large monthly ones. Selena decides to move to a city with a very high cost of living, for a job with a slightly higher salary. Selena decides to move to a city with a very high cost of living, for a job with a slightly higher salary. Inflation forces a car dealership to increase its prices and pay for frequent ads in the newspaper to announce the changes.
Because of extremely high inflation, David makes small weekly cash withdrawals instead of large monthly ones. Shoe leather costs Selena decides to move to a city with a very high cost of living, for a job with a slightly higher salary. Money illusion Selena decides to move to a city with a very high cost of living, for a job with a slightly higher salary. Money illusion Inflation forces a car dealership to increase its prices and pay for frequent ads in the newspaper to announce the changes. Menu costs
Match the use of GDP data to the appropriate situation. Brad looks at GDP to determine what impact the recent recession has had on economic activity. Lupe examines the per capita real GDP of seven nations to determine which country might have the wealthiest citizens. Leia examines GDP over a ten-year period to determine whether the economy of a particular country is in decline or on the rise.
Brad looks at GDP to determine what impact the recent recession has had on economic activity. Measuring business cycles Lupe examines the per capita real GDP of seven nations to determine which country might have the wealthiest citizens. Measuring living standards Leia examines GDP over a ten-year period to determine whether the economy of a particular country is in decline or on the rise. Measuring long-term economic growth
Which of the following statements are true about the underground economy?
Correct: It is possible for the underground economy to have an effect on the legitimate economy. It is not possible to accurately measure the size of the underground economy Incorrect: All underground economic activity os harmful to society. All of the goods and services traded in the underground economy are illegal.
Gwyn owns a furniture store. She notices prices at other furniture stores have increased dramatically over the past two years. She decides she needs to expand her output because demand must be growing. However, in order to do so, she needs to find a loan. What problems could inflation cause for Gwyn?
Correct: Lenders may be wary of providing Gwyn a loan because it is difficult to predict future price levels. Gwyn may need to spend money to update her price displays throughout the store. Gwyn might misinterpret rising prices associated with inflation for a higher demand. Incorrect: Gwyn will need to pay more capital gains taxes
Which of the following problems can inflation cause for suppliers?
Correct: Long term agreements become too risky for lenders, making it more difficult to obtain a loan. Prices begin to rise, so firms increase output Incorrect: Lower prices Higher demand
Assuming that the trends from 1980 to 2010 continue for another decade, which country would you expect to have a lower standard of living in 2020 than in 1970?
Correct: Nicaragua Incorrect: Turkey, India, Mexico
What, by consensus among economists, are the broad factors for economic growth?
Correct: Resources Institutions Technology Incorrect: Topography Language
Which institutions foster economic growth?
Correct: Stable inflation rate Efficient taxes Open markets Political stability Private property rights Incorrect: Natural resources Price controls
Identify the characteristics that have enabled Singapore to become one of the world's most prosperous nations.
Correct: Strategic location High literacy rate Stable financial system Incorrect: Rich mineral deposits Strong agricultural sector Self sufficiency in regard to water food and energy
Two similar groups of about 300 people each took the same survey, except that the order of the questions differed for each group. One question was answered "Yes" by 75% of one group but only by 50% of the other group. What might have happened?
Correct: The difference is due to priming effects. Incorrect: The difference is due to framing effects. The difference is due to intertemporal decision making. The difference is due to status quo bias.
Which of the following scenarios make it difficult to accurately measure the CPI?
Correct: The price of a ticket to a game increases after that stadium is rebuilt. A company releases a new product that many consumers adopt. Incorrect: The typical basket of consumer goods does not change. Consumers need to purchase gas to get to work.
Click on the names of countries where the standard of living improved significantly between 1950 and 2000.
Correct Poland, Turkey, Mexico, India Incorrect Nicaragua, Somalia
Which developments were characteristic of the Industrial Revolution and the events leading up to it, in nations where it took hold?
Correct: A shift from agriculture to manufacturing Technological innovations A sharp upturn in real per capita GDP Legal innovations such as increased protection for private property Incorrect: Greater emphasis on environmental sustainability
Amanda needs to buy a new car for work. She has one day to find a car and was able to read only one article about new cars before she went to the dealership. Which of the following options describe how bounded rationality is at work in this situation?
Correct: Amanda feels pressured by the time constraints on her purchase. Amanda has limited amount of information with which to make her decision. Incorrect: Amanda does not want to buy a good car. Amanda did not make an effort to gather information about new cars.
What are the three reasons why the CPI is hard to measure accurately?
Correct: Consumers substituting one good for another because of price Changes in the quality of the same good, over time New products to buy and new ways for consumers to buy them Incorrect: The difference between nominal and real buying power Changes in the tax rate therefore in take home income
The real GDP of Country A grew by only 1% from 2011 to 2013, while the real GDP of Country B grew by 5% during that same time span. Based on the data, what can we say definitely about the two countries?
Correct: Country B will eventually have a higher real GDP than Country A if the economy of each country continues to grow this way. Incorrect: Country B has a very high quality of life Country A's economy has been in a period of contraction Country A has a modestly high quality of life Country A has a high real GDP
Which of the following are examples of non-market services? Taking your car to the mechanic for routine maintenance Cutting your own hair Changing the oil in your car yourself Going to the barber
Correct: Cutting your own hair Changing the oil in your car yourself Incorrect: Taking your car to the mechanic for routine maintenance Going to the barber
Which of the following statements are good assessments of the value of GDP as an economic statistic?
Correct: GDP is correlated with many measures of human welfare. Nominal GDP cannot indicate whether the economy is getting stronger or weaker. Incorrect: GDP accurately captures all economic activity. GDP does not account for goods being imported rather than locally produced.
Which of the following can be causes of frictional unemployment?
Correct: Government regulation Unemployment benefits Lack of information Incorrect: Industries shutting down due to long term changes in consumer tastes Recession
Which of the following may be considered as part of the consumer price index?
Correct: Housing, food, transportation Incorrect: Investments, taxes
Which of the following situations may show framing or priming effects?
Correct: Employees at a company are more likely to sign up for a new benefit if they are automatically enrolled with the option to opt out, rather than given the chance to enroll for themselves. The results of a customer satisfaction survey are influenced by the order of the questions. Incorrect: David's company is struggling, yet he rejects a job offer from a higher paying company because he is afraid of change. A person invests in a conservative stock portfolio rather than looking for a better rate from a more aggressive investment.
A risk-neutral person will refuse to take a gamble with any risk.
False
All prices rise evenly during periods of inflation and deflation.
False
In economics, cultural norms are a given—not a factor that can be critiqued and changed for economic reasons.
False
Natural resources are the decisive ingredient in any country's prospects for economic growth.
False
Research by economist Maurice Allais illustrated that people make decisions consistently according to their risk preference, regardless of their financial circumstances.
False
You can figure out how much the economy has grown over the years by simply looking at nominal GDP.
False Real GDP is a more accurate measure of economic growth because it corrects for inflation
The unemployment rate includes discouraged workers and underemployed workers.
False must be actively seeking work
Mary's costs will rise, and for revenue to keep pace she will have to - to keep her prices consistent with inflation. If Mary mistakenly believes the rising price of seafood is the result of increased -, she may misdirect restaurant resources. This would be an example of price -.
Deal with menu costs Demand Confusion
Immediately following the 1982 Recession, the growth rate of real GDP was - and the increase in - was - than following the Great Recession. Both recessions were - the Great Depression.
Higher Unemployment Steeper Less severe than
In an experiment, children were given a marshmallow and were promised a second marshmallow if they could wait 15 minutes to eat the first one. Only about one-third of the children earned the second marshmallow. What does this experiment illustrate about children's rationality?
Difficulty with intertemporal decision making
According to the table, Australia has the fifteenth-highest GDP among the countries with the largest economies in the world. Does this mean Australia also has the fifteenth-best standard of living? Fill in the blanks to complete the passage. Australia's GDP - that Australians have the fifteenth-best standard of living. A nation's - is a better standard-of-living indicator, because it measures -. Using this measure, it looks like Australia has a better standard of living than all but three other nations.
Does not indicate Per capita GDP Average income
A company has a 401(k) savings plan for its employees. The participation rate will be about the same whether people are given an easy enrollment form to fill out or are enrolled automatically but given an easy opt-out form to complete if they don't want to participate.
False
Two things tempt governments to enact inflationary policies. The first is -, which can be paid off by -. The second is -economy, which in the short term can be jump-started by a -increase in the money supply.
Government debt Printing money A sluggish Surprise
Using the idea of bounded rationality, identify the reason why, in each situation, a consumer might fail to make the decision that rational models predict.
Gwyn's car is running out of gas. She stops at the first station she sees. Limited time Armando is shopping for shrubs for his yard. He has tried, unsuccessfully, to find out which shrubs are the most disease-resistant. Limited information Reilly has been shopping for a new laptop for weeks. At this point, he is having trouble distinguishing the different models he has seen. Limited capacity to process information
Place the countries in order of economic growth, least to greatest, for the period 1950-2008.
Haiti El Salvador Mexico Turkey
Anakin is given three options: (1) Pay $100 for an 80% chance of winning $400. (2) Pay $100 for a 30% chance of winning $600. (3) Pay $100 for a sure-thing payout of $300. If Anakin is a risk-neutral gambler, which way will he choose?
He will take the 80% chance of winning $400
What could happen if the CPI were under-calculated?
Wages will below
In poor nations, access to - is lower than in wealthy nations. Moreover, it is typically lower for - than for -.
In poor nations, access to education is lower than in wealthy nations. Moreover, it is typically lower for women than for men.
In the last two decades, China's - has grown at just under - annually. China will soon rank among the world's - nations.
In the last two decades, China's real per capita GDP has grown at just under 10% annually. China will soon rank among the world's wealthiest nations.
Inflation occurs when the overall prices of goods -. This means that consumers have - purchasing power. Deflation occurs when the overall prices of goods -. When this happens, consumers have - purchasing power.
Increase Less Decreasing More
Which of the following by definition directly adds to a country's GDP (gross domestic product)? Increased commercial travel Increased government borrowing Discovery of untapped oil reserves Growing population
Increased commercial travel
Why does inflation occur?
Increased money supply, relative to the supply of goods and services
The unemployment rate in Economy X when it is growing normally is 5%. When Economy X is in a recession, the unemployment rate is 10%. Drag each word or phrase to the appropriate blank space in order to complete the paragraph correctly. For Economy X, the natural rate of unemployment - 5%. This rate is not due to - factors. It applies -.
Is always Cyclical At all times
Which statement is not true of full employment output (Y*)?
It is the economic output when unemployment is at zero
Jorge considers himself a risk-averse person. He takes the opportunity to switch to a new job where there are two possible outcomes: there is a 20% chance that he will earn $30,000 more per year than in his current job, and there is an 80% chance that he will get laid off and end up in a job where he is earning $10,000 less than in his current job. What does this decision tell us about Jorge?
Jorge's assessment of himself as risk averse is incorrect. He is a risk taker.
Identify the fallacy in each situation.
Katrina won on the last three scratch tickets she bought at the grocery store, so she continues buying them. Hot hand fallacy Each year Beth bets her favorite team will make it to the playoffs, because they have never been there before and she believes they must be overdue. Gambler's fallacy Evan has not won his fantasy football league in 10 years and believes this will be the year he wins Gambler's fallacy
Fill in the blanks to complete the passage explaining why GDP is not always the best measure of a country's well-being. GDP is the best measure of a nation's economic activity. However, GDP does not take into account many factors that affect quality of life, like the amount of people's - or the cleanliness of the -. GDP only measures a country's economic -.
Leisure time Environment Output
What is the main advantage of the Billion Prices Project over the CPI?
Many prices can be monitored daily
What is the main advantage of the Billion Prices Project over the CPI?
Many prices can be monitored daily.
Fill in the blanks to complete the explanation for why economists use the chained CPI. The chained CPI is - than the traditional CPI. The chained CPI is updated - in an effort to compensate for the - of new products. The traditional CPI has a strong - bias.
More accurate Monthly Price Changes Upward
Apply the appropriate label to each country.
Niger poor Israel rich Liberia poor Taiwan rich South Korea rich Tanzania poor
Do recessions always prevent a long-term increase in a nation's real GDP?
No, a nation will normally also have periods of economic expansion that balance out recessions.
Which of the following groups would be included as unemployed when calculating the unemployment rate?
Not included: A 15 year old student searching for his first job Recently laid off workers who are not searching for jobs Retired workers Employed workers who want to work more hours Included: Recently laid off workers who are searching for new jobs
Two people are playing an ultimatum game with $100. Player 1 can make an offer to Player 2, who can either accept or reject it. If Player 2 accepts, then they split the money according to Player 1's offer. If Player 2 rejects, then neither of them get any money. If Player 1 offers $2 to Player 2, what does traditional economic theory say Player 2 will do?
Player 2 will accept the offer Traditional economic theory says that both players are rational and therefore player 2 values $2 more than nothing and will accept it
Order the expected values of the following gambles from least to greatest.
Probability of winning: 80% Payout: $1000 Probability of winning: 15% Payout: $10000 Probability of winning: 50% Payout: $5000
Match the situation to the inflation-related problem it illustrates. Producers are unable to determine how much output to produce. Unstable inflation makes it difficult for lenders to anticipate the value of their money in the future. A surprise increase in inflation devalues borrowers' future payments to lenders.
Producers are unable to determine how much output to produce. Price Confusion Unstable inflation makes it difficult for lenders to anticipate the value of their money in the future. Uncertainty about future price levels A surprise increase in inflation devalues borrowers' future payments to lenders. Wealth redistribution
The per capita GDP and GDP growth rates of Country A and Country B are the same. Nonetheless, the citizens of Country B are clearly better off. How could this be true? Fill in the blanks to complete the passage. The most natural interpretation of "better off" is that citizens of Country B have a higher -. It is possible that the citizens of Country B spend more time -. It is also possible that they live in a -. GDP - measure the quality-of-life indicators that would explain this.
Quality of life In leisure activities Cleaner environment Does not
Suppose you're working in your hometown. You have an opportunity to take a new job in a different city, where the cost of living is different. In each of the following situations, would your real wage be higher or lower in the new job?
Real wage would be higher: The cost of living in the new city is 35% lower and you'd be paid the same amount. The cost of living in the new city is 8% higher and you'd get a raise of 10%. The cost of living in the new city is 10% lower and you'd take a 5% pat cut. Real wage would be lower: The cost of living in the new city is 12% higher, and you'd get a raise of 10%
Darius is offered a choice between two gambles on a fair coin flip: (1) Pay $100, win $110 on either heads or tails. (2) Pay $100, win $120 on heads and $70 on tails. Darius chooses (2). What sort of attitude does this choice reveal?
Risk taker option 1 $110 option 2 0.5($120) + 0.5($70) = $95
Thirty years ago Daniel bought a plot of land for $50,000 when the CPI was 50. Now the CPI is 180 and he sold the land for $180,000. What issue might inflation cause for Daniel?
Tax distortions he will have to pay a capital gains tax on his land even though the real value of his land did not increase
Place the inventions in chronological order.
Telephone X ray machine Antilock brakes Photocopying Cell phone
The United States produces six times as much corn per acre as it did 85 years ago. This has been accomplished by means of new - varieties of corn, improved products for - control, more efficient - techniques, and new -.
The United States produces six times as much corn per acre as it did 85 years ago. This has been accomplished by means of new hybrid varieties of corn, improved products for disease control, more efficient irrigation techniques, and new fertilizers.
Take 2014 as the price index base year. That year, you paid $80 for a day at a theme park. In 2015, the price was up to $84. Assuming that the increase reflects the inflation rate and that this rate continues in 2016, match each number to its description.
The cost of a theme park visit in 2016 dollars 88.20 The 2016 price index 110.25 The 2015 price index 105 The inflation rate as a percentage 5
Match the situation to the factor that affects the accuracy of the CPI. The cost of bananas increases dramatically. Many people switch to oranges because they are cheaper. A new smartphone app solves math problems simply by pointing the camera at the page. The cost of cable increases. People decide to switch to Netflix instead. Newer cars have built-in GPS and Bluetooth capabilities. Video game consoles offer better graphics and gameplay than they did a decade ago. New pop-up stores at airports sell clothing, personal electronics, and designer eyewear at low prices.
The cost of bananas increases dramatically. Many people switch to oranges because they are cheaper. Substitution A new smartphone app solves math problems simply by pointing the camera at the page. New products The cost of cable increases. People decide to switch to Netflix instead. Substitution Newer cars have built-in GPS and Bluetooth capabilities. Changes in quality Video game consoles offer better graphics and gameplay than they did a decade ago. Changes in quality New pop-up stores at airports sell clothing, personal electronics, and designer eyewear at low prices. New locations
Classify each concept as microeconomic or macroeconomic. The hiring decisions of a company The unemployment rate of a nation The financial decisions of a family The median income of a small state
The hiring decisions of a company Microeconomics The unemployment rate of a nation Macro The financial decisions of a family Micro The median income of a small state Macro
Jaime mailed in a raffle entry off the side of a cereal carton. The carton said that 1 in 800,000 entries would win. Which of the following is a rational motivation for Jaime to enter the raffle?
The raffle has a positive expected value
The standardized - made it much easier to transport goods around the world, by eliminating the need to - them every time the mode of -changed. This illustrates the key role of - as a factor of production.
The standardized shipping container made it much easier to transport goods around the world, by eliminating the need to repack them every time the mode of transportation changed. This illustrates the key role of physical captial as a factor of production.
In the graph, click on the start and end points of a period of recession or contraction.
The tops and bottoms of the curves of the short run path of a business cycle
Some amount of unemployment will always exist, even in a healthy economy.
True
Stock price volatility is often driven by fallacies rather than metrics that measure stock valuation.
True
Underground economies are smallest in countries with strong economies.
True When the economy is strong, people have more opportunities to earn more money through legitimate work
Surprise inflation can help people who borrow money.
True future payments become devalued
Not all unemployment is -. Sometimes, unemployment is due to -, which is the introduction of new - and technologies that leads to the shutdown of other industries and jobs, as some jobs become -.
Unhealthy Creative destruction Products Obsolete
Correctly classify each situation that GDP cannot measure. Unregulated industries pollute the air. Country A has a very high GDP, but the average person works 60 hours a week. You repair your own pants when your rip them. A restaurant server takes home $75 in unreported tips each night.
Unregulated industries pollute the air. Quality of environment Country A has a very high GDP, but the average person works 60 hours a week. Leisure Time You repair your own pants when your rip them. Non-market good A restaurant server takes home $75 in unreported tips each night. Underground economy
Match the situation to the decision-making difficulty that best describes it.
Wayne has a good salary and wants to have a comfortable retirement, but always seems to spend his entire paycheck. Intertemporal decision making A survey about the weather first asks respondents how often it has rained, then asks them if they believe there has been a drought. Priming effects A driver is reluctant to get rid of a car that turned out to be a bad buy, even though she could then buy a better one. Loss aversion
Which questions explore microeconomic topics and which explore macroeconomic topics? Apply the correct label to each question. What effect did the interest rate have on inflation? What effect did falling home values have on unemployment? Why did Company C increase its advertising budget? Why did Billi buy a new house?
What effect did the interest rate have on inflation? macroeconomics What effect did falling home values have on unemployment? macroeconomics Why did Company C increase its advertising budget? microeconomics Why did Billi buy a new house? microecenomics
Apply the appropriate label to each situation. Your mom made a sweater for you for your birthday. Your child is paid $40 to walk your friends' dog while they are on vacation. Your mom made a sweater for you for your birthday. Your child is paid $40 to walk your friends' dog while they are on vacation. Your neighbors grow and eat their own vegetables from their private garden. The neighborhood kids sell lemonade when it is hot outside.
Your mom made a sweater for you for your birthday. Non-market good Your child is paid $40 to walk your friends' dog while they are on vacation. Underground economy Your mom made a sweater for you for your birthday. Your child is paid $40 to walk your friends' dog while they are on vacation. Your neighbors grow and eat their own vegetables from their private garden. Non-market good The neighborhood kids sell lemonade when it is hot outside. Underground economy
Michael had all his money in an investment portfolio that was moderately risky. The stock market fell and caused him to lose a lot of his money. In response, he then invested in a portfolio with a much higher potential payoff, but a lower expected value. How might an economist explain Michael's behavior? Fill in the blanks to complete the passage. The traditional model of risk behavior assumes that people are - in their risk-taking preferences. According to the traditional model, Michael should maximize his utility based on a rigid calculation of expected value. However, Michael's change in behavior caused by the fall in the stock market is consistent with a concept from psychology known as -. This concept suggests that people weigh the utilities and risks of gains and losses -. After the initial setback, Michael has become - tolerant of risk in an effort to make up for his losses.
consistent prospect theory differently more
Sean is buying a lotto ticket for a Fantasy 5 game, in which players try to predict which five numbers will be drawn out of the numbers 1 through 39. Since the number 17 hasn't been drawn in the last 60 days, Sean feels it is due to be drawn and therefore is a good number to bet on. Is Sean right? Fill in the blanks to complete the passage. Sean is -. This is an example of the -. Sean believes that the number 17 is overdue. The fact is, recent history makes the number 17 - to be drawn compared to other numbers.
incorrect gambler's fallacy equally likely
The diagram shows an ultimatum game in which Player 1 gets to decide how to share $1,000 with Player 2. If Player 2 accepts the offer, the sum is split according to the proposal. If Player 2 rejects the offer, neither player gets anything. (The dollar amounts shown in parentheses indicate the payoffs to Player 1 and Player 2, in that order.) In terms of traditional economic theory, which choices by Player 2 would be irrational? To answer, click or tap the appropriate "Accept" or "Reject" boxes below
irrational would be rejecting any offer where you would be making money
Melanie is offered a choice between two gambles on a fair coin flip: (1) Pay $50, win $70 on either heads or tails. (2) Pay $50, win $10 on heads and $120 on tails. Melanie chooses (1). Now Melanie is given a third option: (3) Pay $50, win $40 on heads and $110 on tails. Given the choice to stay with gamble (1) or switch to gamble (3), Melanie chooses (3). What sort of attitude toward risk do Melanie's choices reveal?
risk neutral
Mary decides not to leave her current minimum-wage job for a higher-paying job. She knows the ropes at her current job and knows how to deal with her coworkers. She fears having to adapt to a new situation and getting to know a new set of people. What inconsistency in decision-making might cause this? Fill in the blanks to complete the passage. Mary could be exhibiting - because she wants to maintain her current work environment. Mary values keeping her current wage and familiar coworkers more than the opportunity to enhance her welfare. This is an example of - aversion. In this scenario, traditional economic theory assumes Mary would choose to - the higher-paying job. The field of economics that helps us understand why people's decisions sometimes contradict standard assumptions about rationality is called - economics.
status quo bias loss accept behavioral
