Discussion Questions: Provide brief answers to the following questions.

(a)Say someone is buying a new microwave and there's a 10% chance that it is going to break over the next year (by default, it comes with no warranty). Should a reasonably risk-averse person buy an insurance policy from the store, which costs 12% the price of the microwave, and will replace it for free in the event that it breaks over the next year? Explain briefly.

(b)Under what sorts of circumstances might reasonably risk-averse people want to make decisions (or investments, gambles, etc) with negative expected value? (Setting aside situations in which gambling itself is a form of entertainment.)

(c)This winter break, someone may hypothesize to you that machines are going to replace many workers in the future and there will be persistent large-scale unemployment. What have you learned about this, and what would you saytothe person?

(d)What is the relationship between increased funding for public education and wage inequality in the short-run and long-run?