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q1
In 1983, Pete purchased a 13" television set for $150. In 1999, a 13" television set could be purchased for $75. Knowing that the 1999 CPI is greater than 100 and the CPI equals 100 for 1983, one can conclude that the change in the real price of the 13" television is
1) negative.
2) zero.
3) positive.
4) impossible to estimate without knowing the value of the CPI for 1999.
q2
The price of basic cable television service increased from $15 per month in 1983 to $35 per month in 1999. During this same time period, the CPI rose 70%. The real price of cable television service
1) increased.
2) stayed the same.
3) decreased.
4) cannot be determined without further information.
q3
A trendy clothing store orders different styles of clothing not knowing which designer will be more popular in the new season. There are two designers, X and Y. There is a 50% chance that designer X will be more popular and a 50% chance that designer Y will be more popular in the new season. Profit is $20 per suit on suits made by the more popular designer and $10 per suit on suits made by the less popular designer. The store is going to order only 2 suits. How much would the store's owner be willing to pay to know ahead of time which designer will be more popular?
1) $10
2) $20
3) $5
4) $0
q4
Tim is risk averse, and his utility from wealth can be expressed as the square root of his wealth. Tim's only wealth is $100 cash that is currently hidden in his house. Police reports suggest that there is 10% chance that Tim could fall victim to a robber and lose all of his wealth. What is the actuarially fair price of insurance to insure against Tim's loss?
q5
In 1983, Pete purchased a 13" television set for $150. In 1999, a 13" television set could be purchased for $75. Knowing that the 1999 CPI is greater than 100 and the CPI equals 100 for 1983, one can conclude that the change in the real price of the 13" television is
1) negative.
2) zero.
3) positive.
4) impossible to estimate without knowing the value of the CPI for 1999.
q5
The price of basic cable television service increased from $15 per month in 1983 to $35 per month in 1999. During this same time period, the CPI rose 70%. The real price of cable television service
1) increased.
2) stayed the same.
3) decreased.
4) cannot be determined without further information.
q6
A trendy clothing store orders different styles of clothing not knowing which designer will be more popular in the new season. There are two designers, X and Y. There is a 50% chance that designer X will be more popular and a 50% chance that designer Y will be more popular in the new season. Profit is $20 per suit on suits made by the more popular designer and $10 per suit on suits made by the less popular designer. The store is going to order only 2 suits. How much would the store's owner be willing to pay to know ahead of time which designer will be more popular?
1) $10
2) $20
3) $5
4) $0
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