Figure 27-3
The following figure shows the utility function for Paul.
-Refer to Figure 27-3.Suppose the vertical distance between the points (0,A)and (0,B)is 10.If his wealth increased from $700 to $900,then
A)Paul's utility would increase by less than 10 units.
B)Paul's utility would increase by more than 10 units.
C)Paul's utility would increase by exactly 10 units.
D)Any of the above could be correct.

Question

Figure 27-3
The following figure shows the utility function for Paul. 
-Refer to Figure 27-3.Suppose the vertical distance between the points (0,A)and (0,B)is 10.If his wealth increased from $700 to $900,then
A)Paul's utility would increase by less than 10 units. 
B)Paul's utility would increase by more than 10 units. 
C)Paul's utility would increase by exactly 10 units. 
D)Any of the above could be correct.

Quizplus · Accepted Answer

The vertical distance between points (0,A) and (0,B) represents the decrease in utility when wealth decreases by $200. Therefore, a $200 increase in wealth would not necessarily result in an equivalent increase in utility. Since the curve is concave, the marginal utility of wealth decreases as wealth increases. Therefore, Paul's utility would increase by less than 10 units.

Figure 27-3 The Following Figure Shows the Utility Function for Paul