Exhibit 16

question 11

Multiple Choice

Exhibit 16.5.The following data shows the demand for an airline ticket dependent on the price of this ticket. For the assumed cubic and log-log regression models,Demand = β₀ + β₁Price + β₂Price² + β₃Price³ + ε and ln(Demand) = β₀ + β₁ln(Price) + ε,the following regression results are available: Refer to Exhibit 16.5.What does the slope of the obtained regression equation signify?

• A)For every 1% increase in the price,the predicted demand declines by approximately 3.2577%.
• B)For every 1% increase in the demand,the expected price increases by approximately 3.2577%.
• C)For every 1% increase in the demand,the expected price decreases by approximately 3.2577%.
• D)For every 1% increase in the price,the predicted demand increases by approximately 3.2577%.

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Definitions:

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to asymmetric information.

Recklessly

Acting with a lack of concern for the risk or negative consequences of one's actions.

Airbags

Safety devices in vehicles designed to inflate rapidly in the event of a collision to prevent or reduce injury to passengers by limiting direct impact.

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to another, leading to potential advantages or disadvantages in the transaction.