End Users Need to Hedge the Prices at Which They

question 332

Multiple Choice

End users need to hedge the prices at which they can purchase these commodities for instance:

• A) A University might want to lock in the price at which it purchases electricity to supply its air conditioning units for upcoming summer months
• B) An airline wants to lock in the price of the jet fuel it needs to purchase in order to satisfy the peak in seasonal demand for travel
• C) A cotton producer wants to hedge his exposure to changes in the price of fertilizers or his end product (cotton)
• D) Only A and B

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Definitions:

Willingness To Pay

The highest price a person is willing to pay for a product or service, indicative of its perceived worth to them.

Public Park

An area of natural, semi-natural, or planted space set aside for human enjoyment and recreation or for the protection of wildlife or natural habitats.

Not Excludable

A characteristic of public goods where it is not possible to prevent people from using the good or service, regardless of whether they have paid for it.

Opportunity Cost

Sacrificing potential profits from different choices upon selecting a particular option.