QUESTION 25 Figure 27-2. The figure shows a utility function for Britney Utility

Question

QUESTION 25 Figure 27-2. The figure shows a utility function for Britney Utility $750 $1,050 $1,350 Wealth Refer to Figure 27-2. Suppose the vertical distance between the points (0, A) and (0, B) is 5. If her wealth increased from $1,050 to $1,350, enBritney w Britney would change from being a risk-averse person into a person who is not risk averse. Britney's subjective measure of her well-being would increase by more than 5 units. Britney would change from being a person who is not risk averse into a risk-averse person. Britney's subjective measure of her well-being would increase by less than 5 units a. b. C. d.

Explanation / Answer

The correct answer is D. As the income increases, the utility function becomes flatter and so the change inutility is less. The correct answer should be D.

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