1. If an individual is risk neutral, then their total utility function must display _____ marginal utility.

constant

diminishing

increasing

either constant or diminishing, but not increasing

2. Which of the following is an example of hedging?

Gizelle buys stock in a tree farm to help provide clean air.

Sissy eats vegetables and proteins to enhance her health.

Juan buys professional equipment to help ensure his success as a barber.

Mario stocks ice cream and hot chocolate in his shop so there will be sales in hot or cold weather.

3. Which of the following would NOT reduce Leah's risk of being too cold or hot when outside for a picnic?

making sure the food is so good it will distract from the weather

checking the weather forecast and dressing according to it

wearing several layers that can be removed or added back as needed

arranging an alternate date for the picnic should the weather be unfavorable

4. The utility function for wealth indicates that:

total utility falls as wealth rises.

there is a negative relationship between wealth and total utility.

marginal utility rises as wealth rises.

marginal utility falls as wealth rises.

5. When considering diminishing marginal utility, how do the costs compare to the benefits of a fair bet?

The drop in utility due to losses is less than the increase in utility due to gains.

The costs and benefits are equal in size but in opposite directions.

The costs and benefits are equal in size and in the same direction.

The drop in utility due to losses exceeds the increase in utility due to gains.

6. Diminishing marginal utility makes people:

less prosperous.

risk neutral.

risk averse.

wealthy.

7. In economics, the expected value of a random variable is qualified as:

the most frequently occurring value of that variable.

the most recent value of that variable.

the weighted average of all possible values, where the weights on each possible value correspond to the probability of that value occurring.

impossible to determine.

8. In economics, the expected utility of a particular choice is qualified as:

the most frequently occurring value of that variable.

the most recent value of that variable.

the weighted average of all possible utility levels, where the weights on each possible value correspond to the probability of that value occurring.

impossible to determine.

9. Expected utility is:

the standard level of utility used to determine if a person is happier or less happy than anticipated.

the utility level a person hopes to achieve if all goes as expected.

the average level of utility across a population.

a person's utility, on average, if he or she makes a particular choice.

10. The more risk averse people are, the:

less they try to gain.

more they try to gain.

more they try to avoid loss.

less they try to avoid loss.

11. If a person is highly risk averse, the _____ marginal utility associated with a negative outcome outweighs the _____ marginal utility from a positive outcome.

lower; lower

lower; higher

higher; higher

higher; lower

12. Hua Xing is mildly risk averse. This means that her utility function will have a _____ slope that _____ becomes more horizontal as her wealth rises.

positive; slowly

positive; rapidly

negative; rapidly

negative; slowly

13. A gamble that, on average, will leave a person with the same amount of money is known as:

a fair bet.

an equal option.

a zero gain bet.

an equity wager.

14. Individuals who would prefer a safe outcome to a risky one are considered:

risk takers.

risk averse.

risk neutral.

financially secure.