10. (Consider This) Which of the following statements about insurance and risk i
ID: 1217009 • Letter: 1
Question
10. (Consider This) Which of the following statements about insurance and risk is true?
A. Insurance inhibits economic growth and investment by discouraging risk-taking.
B. Insurance transfers risk from those with a high tolerance for risk to those with a low tolerance for risk.
C. Insurance companies always earn profits because insurance premiums always exceed the payout for insured events.
D. Insurance transfers risk from those with a low tolerance for risk to those with a higher tolerance for risk.
11. In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:
A. the price of the product itself.
B. consumer income.
C. the prices of related goods.
D. consumer tastes.
12. Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:
A. the substitution effect.
B. the income effect.
C. the price effect.
D. a rightward shift in the demand curve for hamburgers.
13. A surplus of a product will arise when price is:
A. above equilibrium, with the result that quantity demanded exceeds quantity supplied.
B. above equilibrium, with the result that quantity supplied exceeds quantity demanded.
C. below equilibrium, with the result that quantity demanded exceeds quantity supplied.
D. below equilibrium, with the result that quantity supplied exceeds quantity demanded.
14. Suppose that in 2007, Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements:
A. suggest that the demand for Mustangs decreased between 2007 and 2008.
B. suggest that the supply of Mustangs must have increased between 2007 and 2008.
C. suggest that the demand for Mustangs increased between 2007 and 2008.
D. constitute an exception to the law of demand in that they suggest an upsloping demand curve.
15. Price floors and ceiling prices:
A. both cause shortages.
B. both cause surpluses.
C. cause the supply and demand curves to shift until equilibrium is established.
D. interfere with the rationing function of prices.
Explanation / Answer
10. Option D is correct.
Some people have low risk tolerance or prefer low risks and thus are wiling to tranfer the risk to someone who is risk loving for the loss or damage of their valuables. Insurance companies are high risk tolerance agencies who are willing to take risks and provide a cover for the loss or damages, if any, made.
11. Option A is correct.
This is because a demand curve is plotted against the price of the good (own price) under the law of demand. Rest all other factors shift the demand curve to either left or right.
12. Option B is correct.
When the price of hamburgers fell, the conusmer's purchasing power increases, which gave the consumer more income to buy hamburgers. Thus its is classified as income effect, which states that as the price of a good falls, the purchasing power of the consumer increases which gives him the power to buy more of both the goods.
13. Option B is correct.
When the price is aboce the equilibrium price, only a few consumers would be willing to buy that commodity due to higher prices. But as supply curve is positively related to the price, more suppliers would be willing to supply at that higher price. Threby creating an excess supply of goods or a surplus of goods.
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