(See Problem 11

question 20

Multiple Choice

(See Problem 11.) Pete's expected utility function is , where p is the probability that he consumes c₁ and 1 - p is the probability that he consumes c₂. Pete is offered a choice between getting a sure payment of $Z or a lottery in which he receives $1,600 with probability .80 or $14,400 with probability .20. Pete will choose the sure payment if

• A) Z > 3,136 and the lottery if Z < 3,136.
• B) Z > 8,768 and the lottery if Z < 8,768.
• C) Z > 14,400 and the lottery if Z < 14,400.
• D) Z > 2,368 and the lottery if Z < 2,368.
• E) Z > 4,160 and the lottery if Z < 4,160.

Identify the participants in the economy and their roles.

Grasp the concept of the circular-flow diagram and its components.

Recognize the significance of the production possibilities frontier (PPF) and its implications.

Comprehend the assumptions made when constructing economic models.

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Definitions:

Present Dividend

A dividend currently being paid out to shareholders from a company's earnings.

Intrinsic Value

The real or true value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.

Technical Analysis

The evaluation of securities by means of studying past market data, primarily price and volume.

Retain Earnings

Profits that a company has decided to keep or retain rather than paying out to shareholders in dividends or reinvesting back into the company.