Figure 9-4. The figure shows a utility function for Dexter.

-Refer to Figure 9-4. Suppose Dexter begins with $1,300 in wealth. Starting from there,
A) the pain of losing $500 of his wealth would equal the pleasure of adding $500 to his wealth.
B) the pain of losing $500 of his wealth would exceed the pleasure of adding $500 to his wealth.
C) the pleasure of adding $500 to his wealth would exceed the pain of losing $500 of his wealth.
D) This cannot be determined from the graph.

Question

Figure 9-4. The figure shows a utility function for Dexter.
 
-Refer to Figure 9-4. Suppose Dexter begins with $1,300 in wealth. Starting from there,
A) the pain of losing $500 of his wealth would equal the pleasure of adding $500 to his wealth. 
B) the pain of losing $500 of his wealth would exceed the pleasure of adding $500 to his wealth. 
C) the pleasure of adding $500 to his wealth would exceed the pain of losing $500 of his wealth. 
D) This cannot be determined from the graph.

Quizplus · Accepted Answer

According to the utility function, Dexter's marginal utility is decreasing as his wealth increases. This implies that the pleasure he would get from adding $500 to his wealth would be greater than the pain he would experience from losing $500 of his wealth. Therefore, the pleasure of adding $500 to his wealth would exceed the pain of losing $500 of his wealth.