Figure 27-5.The figure shows a utility function for Dexter.
-Refer to Figure 27-5.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 27-5.The figure shows a utility function for Dexter. 
-Refer to Figure 27-5.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 graph, the marginal utility of wealth decreases as Dexter's wealth increases. This means that the pleasure of adding $500 to his wealth would exceed the pain of losing $500 of his wealth. Therefore, choice C is the correct answer.