Figure 27-1.The figure shows a utility function.
-Refer to Figure 27-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including
A)the risk-return tradeoff.
B)insurance.
C)diversification.
D)All of the above are correct.

Question

Figure 27-1.The figure shows a utility function. 
-Refer to Figure 27-1.The properties exhibited by this utility function help to explain various things we observe in the economy,including
A)the risk-return tradeoff. 
B)insurance. 
C)diversification. 
D)All of the above are correct.

Quizplus · Accepted Answer

The utility function shown in Figure 27-1 exhibits diminishing marginal utility and risk aversion, which explains the risk-return tradeoff and the demand for insurance. It also allows for diversification as a way to reduce risk. Therefore, all of the above options are correct.

Figure 27-1.The Figure Shows a Utility Function