ACE 474 Final QUESTIONS FULLY ANSWERED || ACE THE TEST || A+ RATED

What is MRS equal to - CORRECT ANSWER the slope of the indifference curve Positive time Preference - CORRECT ANSWER patient future oriented MRTP 1 Negative Time Prefencer - CORRECT ANSWER impatient present oriented MRTP 1 endowment point - CORRECT ANSWER consuming all of your income in one time period Keynes' Model - CORRECT ANSWER assumes consumption is only a function of current income Modigliani Model - CORRECT ANSWER assumes a variation of income over a person's lifetime, saving and borrowing, allows for a smooth consumption path Friedman's Permanent Income Hypothesis - CORRECT ANSWER assumes that people experience random temporary changes in their income from year to year characteristics theory - CORRECT ANSWER consumers get utility not from the goods themselves, but from the characteristics of those goods efficient frontier - CORRECT ANSWER identifies the maximum amount of characteristics that may be obtained with a given amount of money Divisia Index - CORRECT ANSWER holds the utility constant over time & only the prices change Lasperyes Index - CORRECT ANSWER the cost of the bundle is calculated and compared across time Paasche Index - CORRECT ANSWER Cost of the current bundle is compared across time Divisia - CORRECT ANSWER the "perfect index" Laspeyres Index - CORRECT ANSWER Used to calculate a typical CPI Backward Bending supply curve - CORRECT ANSWER -as wage rises, the number of leisure hours rises -the income effect of a wage dominates the substitution effect Lump Sum transfer - CORRECT ANSWER Which transfer of money is most likely to reduce labor supply more than wage supply? income effect - CORRECT ANSWER for transfers of money which effect dominates the other? income effect substitution effect unitary bargaining model - CORRECT ANSWER households behave as if there is one decision maker, benevolent dictator bargaining model - CORRECT ANSWER who brings in the income to the household matters unitary - CORRECT ANSWER in which bargaining model is income pooled? risk pooling - CORRECT ANSWER Example: someone with a lot of wealth can minimize risk by investing in numerous projects where this is risk sharing adverse selection - CORRECT ANSWER Example: some insured clients have the incentive to be more careless and take greater risks because they know they are protected, thus increasing the potential claims on the insurance provider moral hazard - CORRECT ANSWER incentives that lead people to behave in an inefficient or even fraudulent way statistical discrimination - CORRECT ANSWER Example: insurance premiums & credit scores drawing conclusions based on some known characteristic search good - CORRECT ANSWER quality is determined by inspection before purchase experience goods - CORRECT ANSWER quality can be determined by consuming the good credence goods - CORRECT ANSWER quality can not be determined even after a good is consumed Kaheman and Tversky - CORRECT ANSWER -people care about individual gains and losses -losses weight heavier than gains -people evaluate events first and then add separate values together -diminishing returns in gains and losses offset small loss with larger gain - CORRECT ANSWER Example: grandma & the speeding ticket segregating gains - CORRECT ANSWER Example: receiving 3 birthday presents in individual boxes as opposed to 1 large box with 3 presents combining losses - CORRECT ANSWER Example: giving your parents bad news segregating small gain from a large loss; the silver lining effect - CORRECT ANSWER Example: Receiving a rebate for a purchase availability bias - CORRECT ANSWER people giving too much weigh to what is easy to retrieve from their memory representativeness bias - CORRECT ANSWER judgements based on stereotypes anchoring & adjustment bias - CORRECT ANSWER when people choose preliminary information and then adjust it in accordance with an additional information they have about a situation that seems to be relevant Weber Fechner Law - CORRECT ANSWER you're more likely to notice a change when the change is large in proportion to the original situation independence of irrelevent alternatives - CORRECT ANSWER adding alternative C should not affect whether A is preferred to B or B to A Halo Effect - CORRECT ANSWER adding alternative C which is clearly worse than A and B causes people to tend to choose A if A is closer to C or B if B is closer to C naive - CORRECT ANSWER who handles immediate rewards better sophisticated - CORRECT ANSWER who handles immediate costs better set point theory - CORRECT ANSWER the idea that each person has a predetermined level of happiness, determined by genes & personality type if follows the set point theory - CORRECT ANSWER what do psychologists say about happiness? driven by life circumstances and growth in income - CORRECT ANSWER what do economists say about happiness? Easterlin Paradox - CORRECT ANSWER an increase in income may bring more happiness, however, over time it does not matter and depends on life circumstances such as marriage, your