Ch12

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Intermediate Microeconomics
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  Chapter Twelve Uncertainty  Uncertainty is Pervasive  What is uncertain in economic systems?  – tomorrow’s prices    – future wealth  – future availability of commodities  – present and future actions of other people.  Uncertainty is Pervasive  What are rational responses to uncertainty?  – buying insurance (health, life, auto)  – a portfolio of contingent consumption goods.  States of Nature  Possible states of Nature:  – “car accident” (a)    – “no car accident” (na).    Accident occurs with probability a , does not with probability na  ; a  +  na  = 1.  Accident causes a loss of $L.
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