Author Question: Steve owns a motorcycle valued at 5,000, and that is his only asset. There is a 5 percent chance ... (Read 107 times)

krzymel · **on:** Jun 29, 2018

Steve owns a motorcycle valued at 5,000, and that is his only asset. There is a 5 percent chance that Steve will have an accident within a year. If he does have an accident, his motorcycle is worthless.

Steve's utility of wealth curve is shown in the figure above. An insurance company agrees to pay Steve the full value of his motorcycle in case of an accident if he buys the company's insurance policy. The company's operating expenses are 500 per policy. With no insurance, Steve's expected wealth is A) 4,000.
B) 4,500.
C) 3,500.
D) 5,000.

Question 2

Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPad tablet. Suppose when the price of an iPad decreases by 20 percent, the number of songs downloaded on iTunes increases by 30 percent.

Based on this information iTunes are A) a normal good.
B) an inferior good.
C) substitutes for iPads.
D) complements to iPads.