Consider an individual whose utility function over income I is U(I), where U is increasing smoothly in I (U’ > 0) and convex (U” > 0).   Draw a utility function in U - I space that fits this description.     Explain the connection between U” and risk aversion.     True or false: this individual prefers no insurance to an actuarially fair, full contract. Be sure to explain your answer.

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Q: isk aversion

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A:

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Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.