A Risk-Averse Individual Who Owns a $200,000 House and Faces

question 32

Multiple Choice

A risk-averse individual who owns a $200,000 house and faces the prospect that the house will burn down with the probability 0.05 in any given year will be willing to pay how much of an annual premium to fully insure against such a loss?

• A)$5,000
• B)More than $10,000
• C)No more than $5,000
• D)Either more or less than $10,000 depending on whether housing is a normal or inferior good for the individual

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Definitions:

General Knowledge

Broad, useful information and facts about a wide range of topics rather than detailed knowledge in a specific area.

Long-Term Memory

The phase or type of memory responsible for the storage of information over an extended period, potentially as long as a lifetime.

Curve Of Forgetting

A graph that illustrates the decline of memory retention over time, where information is lost exponentially if no effort is made to retain it.

Long-Term Memory

The phase of the memory system that is capable of storing information for long periods of time, often throughout a person's life.