The appropriate principle of individual choice used. Concept Introduction: Principles of Individual Choice: “Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses. “The true cost of something is its opportunity cost ”- The value of any commodity is derived from the forgone cost to get that particular commodity. “How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice. “People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation. “ Gains from trade ”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized. “Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice. “Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off. “Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market. “When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself. “One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends. “Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together. “Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 1, Problem 1P

To determine

The appropriate principle of individual choice used.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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Students have asked these similar questions

1. Imagine a society that produces military goods and consumer goods, which we'll call "guns" and "butter." a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger "peace dividend," measured by the increase in butter production? Explain.

A health study tracked a group of persons for five years. At the beginning of the study, 20%were classified as heavy smokers, 30% as light smokers, and 50% as nonsmokers. Resultsof the study showed that light smokers were twice as likely as nonsmokers to die duringthe five-year study, but only half as likely as heavy smokers.A randomly selected participant from the study died during the five-year period. Calculatethe probability that the participant was a heavy smoker

Consider two assets with the following returns: State Prob. of state R₁ R2 1 23 13 25% 5% 2 -10% 1% Compute the optimal portfolio for an investor having a Bernoulli utility of net returns u(r) = 2√√r+ 10. Compute the certainty equivalent of the optimal portfolio. Do the results change if short-selling is not allowed? If so, how?

Answer 2

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 1, Problem 1P

To determine

The appropriate principle of individual choice used.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

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Answer 3

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 1, Problem 1P

To determine

The appropriate principle of individual choice used.

Concept Introduction:

Principles of Individual Choice:

“Choice is necessary because resources are scarce”- Resources are always scarce in respect to its use, a single resource can be put to various alternative uses. Therefore, one has to choose between the various uses.

“The true cost of something is its opportunity cost”- The value of any commodity is derived from the forgone cost to get that particular commodity.

“How much is the decision at the margin”- The choice of having something depends on the benefits one receive from that choice.

“People usually exploit opportunities to make them better off”- People are always fond of alternative incentive, which can make them in better situation as compared to the previous situation.

“Gains from trade”- Individual always gain from trade by selling the product in which they are specialized and purchasing the product in which they are comparatively less specialized.

“Market moves towards equilibrium”- Market always tries to settle down at a point where no individual is comparatively better off in changing his choice.

“Resources should be used efficiently to achieve society’s goals”- Resources should be used in such a way that will not make any better off by making the other individual worse off.

“Markets usually lead to efficiency”- People always look for the opportunity, which can make them better off without making any other person worse off, this leads to efficiency in the market.

“When markets don’t achieve efficiency, government intervention can improve society’s welfare”- Government intervention is required when the market do not correct itself.

“One person’s spending is another person’s income”- The economy will always go on because a person earns only when the other person spends.

“Overall spending sometimes gets out of line with the economy’s productive capacity”- The economy can face inflation at the time when spending of whole economy raises all together.

“Government policies can change spending”- Various fiscal and monetary policies of government are used to correct the situation of the economy and adjust the spending.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

Chapter 1, Problem 1P

To determine