The last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000.Based on this information,Rolanda has
A)increasing marginal utility of wealth and is risk averse.
B)increasing marginal utility of wealth and is not risk averse.
C)decreasing marginal utility of wealth and is risk averse.
D)decreasing marginal utility of wealth and is not risk averse.

Question

Quizplus · Accepted Answer

The fact that the last $2,000 of Rolanda's wealth adds less to her utility than the previous $2,000 suggests decreasing marginal utility of wealth. This means that each additional dollar of wealth provides less and less additional utility. This is a common assumption in economics and is consistent with diminishing marginal returns. Additionally, the fact that Rolanda is risk averse suggests that she values each dollar of wealth more than the previous dollar. Therefore, choice C, decreasing marginal utility of wealth and risk aversion, is the best answer.

The Last $2,000 of Rolanda's Wealth Adds Less to Her