Scenario 15.5: Consider the Following Information Based on a Story by Hubert

question 123

Multiple Choice

Scenario 15.5:
Consider the following information based on a story by Hubert B. Herring that appeared in The New York Times on April 17, 1997:
Catherine has a two-pack-a-day cigarette habit. Cigarettes cost about $2 per pack. Catherine is 20. On a $250,000 life insurance policy, her annual premiums are $1200; a non-smoker's would be $500. Smokers earn from 4 to 8 percent less in income than non-smokers (lower productivity and more absence, among other things) . In this case Catherine's income is expected to be $20,500 per year over her lifetime whereas $22,000 is an average non-smoker's salary. Let interest rates are expected to be 3%.
-According to the information in Scenario 15.5, if Catherine's life expectancy is 80 as a non-smoker and no inflation is expected to occur throughout her life (so that cigarettes stay at $2 per pack) , then amount would she save by not buying cigarettes?

• A) $4
• B) $1460
• C) $29,200
• D) $87,600
• E) $116,800

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Definitions:

Secret Conspiracies

Covert plans made by a group with the intent to do something unlawful or harmful, often in a political context.

Price Leadership

Price leadership occurs when a leading firm in an industry sets the price of goods or services, and other firms in the market follow suit, often seen in oligopolistic markets.

Price Wars

A competitive situation where retailers or producers continuously lower prices to undercut competitors, often leading to reduced profit margins for all involved.

Oligopolists

Oligopolists are firms or entities that operate in an oligopoly, a market structure characterized by a small number of sellers that have significant control over market prices and conditions.