If a Student Enrols in an Additional Course at the University

question 136

Multiple Choice

If a student enrols in an additional course at the university, what would an economist conclude?

• A) The total benefit that the student expects to receive as a result of completing her university degree exceeds the total cost of her university education.
• B) The student is not following the rule of rational choice.
• C) The student is not looking at the opportunity costs.
• D) The expected marginal benefit of an additional course must exceed the expected marginal cost of the course.

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Definitions:

Option Smirk

A pattern on the implied volatility graph for options across different strike prices that shows asymmetric volatility, often indicating market anticipation of movement.

Black-Scholes Option

A mathematical model used to price European options and derivatives by estimating the variation over time of financial instruments.

Implied Volatility

The market's forecast of a likely movement in a security's price, often derived from the price of its options.

Binomial Option Model

A mathematical model used to price options by breaking down the option's life into discrete time intervals and calculating the value at each step.