ACE 474 Midterm 2 questions Fully Solved

Salience Theory - CORRECT ANSWER A car buyer would prefer to pay $17,500 for a car equipped with a radio to paying $17,000 for a car without a radio. At the same time would not buy a radio separately for $500 after agreeing to buy a car for $17,000. This can be explained by _________. Present Bias - CORRECT ANSWER the tendency of people to give stronger weight to payoffs that are closer to the present time when considering trade-offs between two future moments Disposition Effect - CORRECT ANSWER the tendency to hold on to stocks that have lost value and sell stocks that have risen in value since the time of purchase Prospect Theory - CORRECT ANSWER people choose to take on risk when evaluating potential losses and avoid risks when evaluating potential gains Hyperbolic Discounting - CORRECT ANSWER Reflects inattention to the future The "Friday" effect - CORRECT ANSWER Investors are more distracted from the task of stock valuation on Fridays and so are less attentive to earnings announcements. Independence Axiom - CORRECT ANSWER Suppose you are indifferent between lotteries A and B. The independence axiom implies that you should still be indifferent between when each lottery is mixed with the same third lottery. Adverse selection - CORRECT ANSWER explains that the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, leaving only "lemons" behind? one party is unaware of the risks associated with the transaction;• E.g., individuals with a higher risk of experiencing a loss are more likely to purchase insurance compared to those with a lower risk. Risk aversion - CORRECT ANSWER Preferring more certain outcomes (less risk takimng) Loss aversion - CORRECT ANSWER we feel losses more heavily than we feel gains Prejudice models do not presume up front that there is any negative racial sentiment on the part of employers. - CORRECT ANSWER False Statistical discrimination models emphasize the role of limited information in labor market transactions. - CORRECT ANSWER True The Fair Housing Act prohibits discrimination in credit transactions, including transactions related to residential real estate. - CORRECT ANSWER False Which of the following is not a challenge to studying racial discrimination? A. People have different perception of who are "black". B. IQ scores are often not available when studying wage. C. Black women and white women have different marriage and fertility patterns that affects their productivity. D. Black people and white people are doing different types of jobs - CORRECT ANSWER D. Black people and white people are doing different types of jobs Which of the following is not an economic property of housing? A. houses are sold in their entirety B. houses are relatively costly to trade C. the quality of houses differs D. Renters consume its dividend in form of housing services - CORRECT ANSWER D. Renters consume its dividend in form of housing services The dual nature of housing means A. Housing provides services while storing the value of your asset. B. Housing can be owned or rent. - CORRECT ANSWER A. Housing provides services while storing the value of your asset. By which definition is a housing bubble common? A. Housing prices are excessively volatile. B. Housing prices are unsupported by fundamentals. - CORRECT ANSWER A. Housing prices are excessively volatile. Which of the following is NOT a measure of housing bubble?