-Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the
A) Risk premium of the consumption bundle
B) Expected utility of the consumption bundle
C) Certainty equivalent of the consumption bundle
D) Expected consumption

Question

-Refer to Figure f.A benefit function is plotted in Figure f.Point B represents the
A) Risk premium of the consumption bundle 
B) Expected utility of the consumption bundle 
C) Certainty equivalent of the consumption bundle 
D) Expected consumption

Quizplus · Accepted Answer

The certainty equivalent of a consumption bundle is the guaranteed amount of consumption that someone would accept instead of taking a gamble on a higher, but uncertain, amount. Point B, representing this concept, indicates the level of certain consumption that provides the same utility as the uncertain prospect.

-Refer to Figure F