Microeconomics

Question 1

Certainty equivalent

Answer 1

The quantity of the consumption good, guaranteed with complete certainty, that the individual would accept as a straight swap for the prospect P₀.

Question 2

Risk aversion

Answer 2

Consumer weakly prefers a combination of the prospect and its certainty equivalent to the prospect alone. Quasiconvex preferences satisfy this.

Question 3

State irrelevance

Answer 3

The state that is realized does not have an intrinsic value to the agent.

Question 4

Independence

Answer 4

If two prospects have equal payments in one particular state, payment = z, and prospect 1 is preferred to prospect 2 for one particular value of z, it is also preferred to prospect to for any value of z.

Question 5

Absolute risk aversion

Answer 5

Lim inn bilde

risk aversion ⇔ a > 0 (concavity)

risk neutral ⇔ a = 0 (linearity)

Question 6

Relative risk aversion

Answer 6

Lim inn bilde

Question 7

Axiom of rational choice

Answer 7

The consumer always makes a choice, and select the most preferred bundle that is available.

Question 8

Weak axiom of revealed preferences

Answer 8

Bilde

Question 9

Rational preferences

Answer 9

The axioms of completeness and transitivity are satisfied