Figure 27-3
The following figure shows a utility function for Dexter.
-Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 12. If his wealth increased from $1,300 to $1,800, then
A)Dexter's subjective measure of his well-being would increase by less than 12 units.
B)Dexter's subjective measure of his well-being would increase by more than 12 units.
C)Dexter would change from being a risk-averse person into a person who is not risk averse.
D)Dexter would be more likely to buy insurance.

Question

Figure 27-3
The following figure shows a utility function for Dexter. 
-Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 12. If his wealth increased from $1,300 to $1,800, then
A)Dexter's subjective measure of his well-being would increase by less than 12 units. 
B)Dexter's subjective measure of his well-being would increase by more than 12 units. 
C)Dexter would change from being a risk-averse person into a person who is not risk averse. 
D)Dexter would be more likely to buy insurance.

Quizplus · Accepted Answer

Dexter's subjective measure of his well-being would increase by more than 12 units because the vertical distance between the points (0, A) and (0, B) is 12, and his wealth increased from $1,300 to $1,800, which is an increase of $500.

Figure 27-3 The Following Figure Shows a Utility Function for Dexter