Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you haveto pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use thegraph to answer the questions that follow.UTILITY (Units of utility)1009080706050403020100036, 55 AC+6B9WEALTH (Thousands of dollars)1215?individual, and, therefore, you wouldThe shape of your utility function implies that you are a risk-aversethe difference in utility between B and A is greater than the difference between A and C.Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individualswho are risk averse? Check all that apply.Risk-averse people are relatively wealthy and simply do not need the additional money.Risk-averse people overestimate the probability of losing money.The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.accept the wager becauseThe more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.

Risk aversion is described as an economic agent's preference for certainty over uncertainty. A…

Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 3 6, 55 C + 6 B WEALTH (Thousands of dollars) 12 15 (?) The shape of your utility function implies that you are a risk-averse the difference in utility between B and A is greater than the difference between A and C. individual, and, therefore, you would accept the wager because Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individuals. who are risk averse? Check all that apply. Risk-averse people are relatively wealthy and simply do not need the additional money. Risk-averse people overestimate the probability of losing money. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.

Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the graph to answer the questions that follow. UTILITY (Units of utility) 100 90 80 70 60 50 40 30 20 10 0 0 3 6, 55 C + 6 B WEALTH (Thousands of dollars) 12 15 (?) The shape of your utility function implies that you are a risk-averse the difference in utility between B and A is greater than the difference between A and C. individual, and, therefore, you would accept the wager because Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individuals. who are risk averse? Check all that apply. Risk-averse people are relatively wealthy and simply do not need the additional money. Risk-averse people overestimate the probability of losing money. The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar. The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Since she has to borrow and pay interest if she wants to consume in the first period, she can…

A: It is known that: Julia has to borrow to consume in period 1

Q: Suppose Jack lives for two periods. Period one is his working life, during which he earns income…

A: A utility function serves as a mathematical expression of an individual's preferences among a given…

Q: Alex spends all his money on jeans and shirts. His utility function is given: U(X₁, X§)= X₁X, ² The…

A: Utility:The utility is want satisfying power of a commodity. It can be expressed in cardinal and…

Q: Question 1 Calculate the marginal rate of substitution (MRS12) for the following utility function:…

A: Answer: Given, Utility function:Uq1,q2=74q1+0.6q22 To find the MRS let us find the marginal…

Q: Assume that someone has inherited 2,000 bottles of wine from a rich uncle. He or she intends to…

A: Given, Someone inherited 2,000 bottles. She intends to drink these over the next 40 years. Utility…

Q: Anna's investment is worth $2.5 million (decreased from $3.5 to $2.5 million) Elsa's investment is…

A: In decision theory, a reference utility function is a computation that shows a person's preferences…

Q: 4. Two individuals, Amir and Budi, consume two goods, clothes (X) and shoes (Y). The utility…

A: Since, the question contains multiple questions, we will answering the first part for you. If you…

Q: 7. Utility maximization question Ross Geller is an archeologist who works for a museum, and he has…

A: Utility maximizing condition is MUL / w = MUCWhere MUL is marginal utility from leisure, MUC is…

Q: Let's revisit Kinko's problem familiar to us from previous assignments. Kinko spends all his money…

A: Given that; Kinko's utility function is U(x,y)=min{x12y12,x4+y} Kinko is consuming 4 whips and 16…

Q: On a separate sheet of paper, draw a utility function for an individual that exhibits diminishing…

A: Beyond the explicit monetary value of those products or Services, a utility function is a…

Q: s utility function is U=X+ 25XZ + Z. Let the price of good X be px, the price of good Z be…

A: Given utility function- U= X+25XZ+Z

Q: Johnny Football has a utility function of the form ? = √?. Johnny is beginning his senior year of…

A: a. Expected utility can be calculated as follows. Expected utility is $910.

Q: QUESTION 4 Linguini and Colette consume only éclair (x,) and profiterole (x,). Linguini has utility…

A: "Since you have posted multiple sub-part questions, I can only answer the first 3 parts, the rest…

Q: Please refer to the following information to answer the question (in bold) below: You enjoy…

A: Utility is maximised where ratio of marginal utility of each good is equal to ratio of prices

Q: 5. Suppose there are 12000 individuals in an economy. All of them have the same preferences,…

A: A utility function is a mathematical representation used in economics and decision theory to…

Q: Lucky Larry spends $640 a year on cigars and lottery tickets. The lottery tickets, Good Y are…

Q: Ben and Jerry are a pair of kids that appreciate the finer things in life: chocolate chips (x) and…

A: General equilibrium is a mechanism that uses the market forces of demand and supply in various…

Q: Kenji is buying salad and pizza for a company lunch. Suppose that a bowl of salad costs $3.00, and a…

A: To solve the question we have assumed Salad as S and Pizza as PIt shows various costs incurred in…

Q: Reese thinks peanut butter and chocolate are great when separate, but when they combine they are…

A: Utility function : U = xy + x + y Price of x : Px = 2 Price of y : Py = 4 Income : I0 = 1…

Q: PROBLEM (4) You have the Cobb-Douglas utility function u(x, y) = xy over apples (x) and plums (y)…

A: To construct a set of feasible set of bundle we need to keep both the budget income and weight…

Q: Consider the two period consumption savings problem faced by an individual whose utility is defined…

A: For the above question let us firstly derive the lifetime budget constraint : In period 1 : Budget…

Q: For questions 7 - 12: Ashley's preferences for consumption and leisure can be expressed as U(C, L) =…

A: Given information: Ashley's preferences for consumption and leisure can be expressed as U = (C-50)…

Q: Consider a utility function for apples and bananas. You are given the following three bundles: (12,…

A: Under the standard assumptions of the well-behaved preference relationship, we expect that…

Q: Two friends, Minrui and Jing, share a flat and both consume internet (i) and all other goods (g).…

A: In can be defined as a type of good that is neither excludable nor rival in nature. The primary…

Question

Suppose your classmate Edison offers you a wager: He will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have
to pay him $3,000 if it is black. Assume your wealth is currently $9,000. The graph shown below plots your utility as a function of wealth. Use the
graph to answer the questions that follow.
UTILITY (Units of utility)
100
90
80
70
60
50
40
30
20
10
0
0
3
6, 55 A
C
+
6
B
9
WEALTH (Thousands of dollars)
12
15
?
individual, and, therefore, you would
The shape of your utility function implies that you are a risk-averse
the difference in utility between B and A is greater than the difference between A and C.
Which of the following sentences most appropriately describe why the pain of losing $3,000 is greater than the joy of winning $3,000 for individuals
who are risk averse? Check all that apply.
Risk-averse people are relatively wealthy and simply do not need the additional money.
Risk-averse people overestimate the probability of losing money.
The more wealth that risk-averse people have, the less satisfaction they receive from an additional dollar.
accept the wager because
The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step 5

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Steve's utility for socks (q1) and other goods (q2) is given by U(q1,q2) = 10q10.1 0.1q² 0.9 The price of the composite good is p2=1 and the price of a pair of socks is p1=2. Steve's income is Y=100. Every year, Steve's mom buys him 20 pairs of socks. How many dollars is the equivalent variation of the $40 that his mom spends on socks every year?
2. Suppose Jill derives utility from not only consuming goods, but also from enjoying leisure time. Let her utility function be defined as follows: U=C.25.R.75 where C is a consumption good that can be bought at a price of $1 and R is hours of leisure (relaxation) consumed per day. There are 24 hours in a day and leisure is defined as time spent not working. Jill has a job that pays $w per hour, a trust fund that pays her $M per day, and she can work any number of hours per day, L, she desires. C, consumption good; R, Leisure (relaxation); L, labor M, non-wage income; w, wage rate. a. Derive her labor supply function? b. Assume M = $100, at what wage is her quantity supplied of hours = 0?
Suppose the Super Bowl is this week, and Raphael is in need of a television to watch the big game. As a college student, Raphael knows that he can either buy his flat-screen television at the local electronics store, or he can shop online for a better deal but have to wait four days for the television to arrive. The following problem uses the economic concept of rate of time preference to help determine which decision is better for Raphael. Throughout the question, assume that Raphael pays for the good the day he buys it, so his wealth is affected in the initial time period no matter where he buys the good. Also, assume the shipping cost and cost to travel to the store are incorporated into their respective given prices. Finally, assume the goods are identical, and there's no cost to gaining information about prices-in other words, he knows the best price online and in the store without having to search. Suppose Raphael receives a utility of 35.11 utils once he actually receives his…
Assume the market clearing price is $5.00 for deli sandwiches and the amount of exchange that would take place at that price is 200 deli sandwiches per day. You, however, don't have this information and have just opened your deli. You decide to price your sandwiches at $9.00 and are willing and able to sell 285 sandwiches per day at that price. When you do this, you notice you sell 100 sandwiches per day. Draw this situation on a graph and then explain what will happen in this market -- i. e., if there is a shortage or surplus, show this on the graph and then explain what the shortage or surplus will cause to happen in the market. Make sure you talk about inventories in your answer.
Clarice has a utility function: U(Y) = 1000 - (100/Y), where Y is her income. clarice has just graduated from college and has a career choice for her first job of either working as a teacher and earning $40,000 or trying to become a theatre lighting director and earning $70,000 (if there is growth in the demand for theatre) or $20,000 (if there isn't growth in the demand for theatre). there is a 50% probability of growth. a consulting firm guarantees Clarice that it already knows whether there will be growth in the demand for theatre next year. what is the maximum amount Clarice should be willing to pay for this information?
Jerry's utility function is U(x,y) = ( 5x + y ) 18. Find Jerry's MRS (for good X in terms of good Y) and then find the value of the derivative dMRS/dx at the point were x=39 and y=69 and enter it below. Remember to enter the number in decimal form. If the number is negative, then use the negative sign (e.g., -3.29839).
Economics Consider two friends Anna and Elsa whose gains and losses are listed as follows: Anna's investment is worth $2.5 million (decreased from $3.5 to $2.5 million) Elsa's investment is worth $2.2 million (increased from $2 to $2.2 million) For each of them write down the reference utility function (First determine the reference point (use a parameter) and derive reference utility function for each).
4. Two individuals, Amir and Budi, consume two goods, clothes (X) and shoes (Y). The utility functions for the two individuals are given as: Utility function of Amir, UA = 15X0.25Y0.75Utility function of Budi, UB = 25X0.5Y0.5 The current price for clothes (Px) is Rp 100,000 and the current price for shoes (PY) is Rp 150,000 a. Determine marginal rate of substitution (MRSXY)between clothes (X) and shoes (Y) for Amir and Budi! Please explain. b. Amir is currently consuming 5 units of clothes (X) and 10 units of shoes (Y), whereas Budi is consuming 12 units of clothes (X) and 8 units of shoes (Y). At this current consumption, have Amir and Budi reached the efficient allocation of clothes and shoes? If they have, explain why. If they have not, calculate the optimal allocation and explain. c. Considering the relative price between of clothes and shoes, at the current consumption, have Amir and Budi reached exchange equilibrium? Please explain d. Use the Edgeworth Box to illustrate the…
Please draw the income-consumption (or income-offer) curve for each of the following utility functions, indicating the slope of each: (a) U = (A)(x^a)(y^b) (b) U = min(ax, by) (c) U = ax + by
3.