Use the Following to Answer Questions

question 47

Multiple Choice

Use the following to answer questions :
Scenario: Choosing Insurance
The Ramirez family owns three cars and is considering buying insurance to cover the cost of repairs.They face two possible states: in state 1,their cars need no repairs and their income available for purchasing other goods and services is $50 000;in state 2,their cars need $10 000 worth of repairs and their income available for purchasing other goods and services is reduced to $40 000.The probability of repairs is 10%,while the probability of no repairs is 90%.
-(Scenario: Choosing Insurance) Use Scenario: Choosing Insurance.For $2 000,the Ramirez family can buy insurance that will cover the full cost of repairs.If family members are risk-averse and want to maximize their expected utility,they will:

• A) buy the insurance.
• B) be indifferent between buying and not buying the insurance since their expected income for purchasing other goods and services is $48 000 regardless of what they do.
• C) buy the insurance as long as the utility of having a certain income of $48 000 to buy goods and services other than car repairs is higher than the utility associated with their expected income without insurance.
• D) self-insure.

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Definitions:

Equal Employment Opportunity

Legislation that ensures that all individuals have an equal chance for employment, without discrimination based on race, color, religion, sex, national origin, age, disability, or genetic information.

Most Favoured Nation Status

A trading advantage granted by one country to another that ensures the receiving country will not be treated less advantageously than any other country with similar agreements.

International Political Kickbacks

Illicit payments made to government officials by businesses or other entities as a way to secure favorable decisions or treatment on an international scale.

Ecological Fallacy

The error of assuming that information about group characteristics can be used to make inferences about individuals within that group.