0039WEALTH (Thousands of dollars)612The shape of your utility function implies that you are athe difference in utility between A and C is15individual, and, therefore, youthe difference between C and B.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.The more wealth that risk-averse people have, the more satisfaction they receive from an additional dollar.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 utility function of a risk-averse person exhibits the law of diminishing marginal utility. Suppose your classmate Tim 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 topay 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 graphto answer the questions that follow.UTILITY (Units of utility)1009080706050403020100032+6U+9B?

Risk aversion: Risk aversion refers to the characteristic of an individual that refers to his…

Suppose your classmate Tim 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 с + B + ?

Suppose your classmate Tim 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 с + B + ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose your classmate Cho offers you a wager: She will choose a playing card at random from a deck and pay you $3,000 if it is red, but you have to pay her $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 60 50 40 30 20 10 0 0 3 CX T² B 9 WEALTH (Thousands of dollars) 12 The shape of your utility function implies that you are a the difference in utility between B and A is 15 (2.) ? individual, and, therefore, you the difference between A and C. 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 overestimate the probability of losing money. The more wealth that risk-averse people have, the less satisfaction they receive from an additional…
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UTIITY (Units of utility) 10 Suppose your friend Deborah offers you the following bet: She will flip a coin and pay you $2,000 if it lands heads up and collect $2,000 from you if it lands tails up. Currently, your level of wealth is $6,000. The graph shows your utility function from wealth. Use the graph to answer the following questions. 100 90 80 B 70 A 60 50 40 30 20 10 WEALTH (Thousands of dollars)
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At a different table, Juan wins $600 in a blackjack game. Similarly, he has to choose between $600 or the chance to play a new game. In this game, Juan has a 60% chance of winning nothing and a 40% of winning $1,000. The following graph presents the utility function of Juan with respect to money: U(w) U(w) U(1,000) U(700) U(600) U(400) 400 600 700 1,000 w 10.2.2 1.0 point possible (graded, results hidden) By how much money would his winnings need to increase or decrease so that Juan is indifferent between the $600 and the new game? (in case of an increase, insert a positive number; in case of a decrease, insert a negative number).
‘‘Risk-averse people should only be averse to big gambles with a lot of money at stake. They should jump on any small gamble that is unfair in their favor.’’ Explain why this statement makes sense. Use a utility of income graph like Figure 4.1 to illustrate the statement. For a challenge, demonstrate the statement using a two-state graph like Figure 4.6.
For the following utility function, graphically depict the following set on a number line:
1. Alizeh and Kelly were traveling together and have gotten stranded at an airport overnight. They have no cash, but they did both think to bring granola bars and turkey sandwiches with them. They currently each have several granola bars and a few sandwiches. Alizeh announces that she'd be willing to give up a granola bar for one turkey sandwich. Kelly responds that turkey sandwiches are bigger than granola bars so she would be willing to give up a granola bar if she could get half a turkey sandwich. Is Kelly and Alizeh's current allocation of granola bars and turkey sandwiches efficient? Explain why or why not. (Note that you cannot rely on a rule here – you have to specifically explain why the allocation does or does not meet the definition of an efficient allocation.)
Rajiv is buying pizza and salad for a company lunch. Suppose that a slice of pizza costs $2.00, and a bowl of salad costs $4.00. Let E be the amount in dollars that Rajiv spends on pizza and salad. If Rajiv buys P slices of pizza and S bowls of salad, then the total amount of money he spends (E) can be represented by the equation Now rearrange the equation you wrote above so that S is written in terms of E and P. The quantity of salad he buys can be represented by the equation Suppose Rajiv has $32.00 to spend on pizza and salad; that is, E = $32.00. Complete the following table with the values of P or S that make the equation true. Hint: To complete the first row, determine the number of salad bowls Rajiv can purchase with $32.00, when the number of pizza slices he purchases is 0. Budget Pizza Salad (Dollars) (Slices) (Bowls) 32.00 32.00 8 32.00 Use the black line (plus symbols) to plot the line illustrating the combinations of pizza and salad that Rajiv can purchase with a budget of…