The Trade-Off Between Risk and Expected Value Is Exactly the Kind

question 28

Multiple Choice

The trade-off between risk and expected value is exactly the kind of choice you have to make whenever you think about investing money in:

• A) stocks.
• B) retirement funds.
• C) bonds.
• D) One needs to think about the trade-off to invest in all these things.

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Definitions:

Backward-Bending

Describes a labor supply curve reflecting a situation where higher wages lead to a decrease in labor supplied because individuals opt for leisure over work.

Labor Supply Curve

A graphical representation showing the relationship between the different levels of wages and the quantity of labor workers are willing to supply.

Income Effect

A person’s willingness to give up some income in exchange for more leisure time.

Substitution Effect

If the price of a resource, say labor, goes up, business firms tend to substitute capital or land for some of their now-expensive workers. Also, the substitution of more hours of work for leisure time as the wage rate rises.