Risk Aversive and Risk Loving behavior, Expected Value and Expected Utility of gambling Concept Introduction: Marginal Utility of Income - The additional/incremental utility derived by a unit increase in the individual’s income is the MU y . Higher level of income implies a higher level of human satisfaction and lower level of income implies less human satisfaction. The MU y is however, diminishing as its utility yielding potential falls with increasing income. Risk Aversive and Risk Loving behavior - A person with a decreasing MU y is a risk aversive who attempts to lower uncertainty by avoiding gambling, while a person with an increasing MU y is a risk loving person. Expected Utility - The aggregate of the products of the utility derived from each outcome and its probability of occurrence is the expected value of the economic choices. It is a predictive value influencing economic decisions. Expected Value - The aggregate of the products of the dollar value associated with each outcome and its probability of occurrence is the expected value of the economic choices. It is a predictive value influencing economic decisions. This is also called the Mathematical Expectation or the EV of an economic experiment.

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Chapter 20, Problem 7P

To determine

Risk Aversive and Risk Loving behavior, Expected Value and Expected Utility of gambling

Concept Introduction:

Marginal Utility of Income- The additional/incremental utility derived by a unit increase in the individual’s income is the MU_y. Higher level of income implies a higher level of human satisfaction and lower level of income implies less human satisfaction. The MU_y is however, diminishing as its utility yielding potential falls with increasing income.

Risk Aversive and Risk Loving behavior- A person with a decreasing MU_y is a risk aversive who attempts to lower uncertainty by avoiding gambling, while a person with an increasing MU_y is a risk loving person.

Expected Utility- The aggregate of the products of the utility derived from each outcome and its probability of occurrence is the expected value of the economic choices. It is a predictive value influencing economic decisions.

Expected Value- The aggregate of the products of the dollar value associated with each outcome and its probability of occurrence is the expected value of the economic choices. It is a predictive value influencing economic decisions. This is also called the Mathematical Expectation or the EV of an economic experiment.

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Active Learning 4: Computing GDP Cookies 2021 (base year) 2022 2023 P Q P Q P Q $1 900 $2 1,000 $3 1,250 200 $1,200 210 Smartphones $900 185 $1,000 Use the above data to solve these problems: A. Compute nominal GDP in 2021. B. Compute real GDP in 2022. C. Compute the GDP deflator in 2023. Mankiw, Principles of Macroeconomics, 10th Edition. 2024 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 34 =4