To earn profits, the market maker must
a. bid high, ask low
b. bid low, ask high
c. equalize the bid and ask price
d. not create the market
QUESTION 2A false negative is
a. When you incorrectly conclude that your hypothesis is true
b. When you incorrectly conclude that your hypothesis is false
c. When you correctly conclude that your hypothesis is true
d. When you correctly conclude that your hypothesis is false
QUESTION 3Market making
a. is the action of bringing together high value buyers and low value sellers
b. transfers goods from their low value uses to high value uses, creating wealth
c. can not occur if the transaction costs are too high to prevent value creating transactions
d. all of the above
QUESTION 4A false positive is
a. When you incorrectly conclude that your hypothesis is true
b. When you incorrectly conclude that your hypothesis is false
c. When you correctly conclude that your hypothesis is true
d. When you correctly conclude that your hypothesis is false
QUESTION 5Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values 14, 13, 12, 11, 10, 9, 8, 7, 6, 5, 4,. Assume no transaction costs and a competitive market. Now suppose competition among several market makers forces the spread down to 4 . How many goods are traded?
a. Four
b. Five
c. Six
d. Seven
QUESTION 6A pharmaceutical company executive has to decide whether to fund a new drug development project. For this project, a success would earn 90 million and a failure would cost 10 million in lost profits. At what probability of expected success should she fund the project?
a. 0.10
b. 0.20
c. 0.80
d. 0.90
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