A Farmer Lives on a Flat Plain Next to a River

question 147

Multiple Choice

A farmer lives on a flat plain next to a river. In addition to the farm, which is worth $F, the farmer owns financial assets worth $A. The river bursts its banks and floods the plain with probability P, destroying the farm. If the farmer is risk averse, then the willingness to pay for flood insurance unambiguously falls when:

• A) F is higher, and A is lower.
• B) P is lower, and F is higher.
• C) F & A are higher.
• D) P is lower, and A is lower.
• E) A is higher, and F is lower.

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Definitions:

Demand for DVDs

The total quantity of DVDs that consumers are willing and able to purchase at a given price level over a specific period of time.

Movie Tickets

Certificates or electronic codes that grant the holder the right to admission for viewing a film at a cinema.

Complementarity

A relationship between two goods where the use of one increases the value or demand for the other.

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded, also known as the market-clearing price.