Asked by Timofei Bolshev on Jun 12, 2024
Verified
Suppose that an individual is risk-averse.If this individual's utility function is depicted in a graph,with income measured on the horizontal axis and utils on the vertical axis,the graph will be an upward-sloping:
A) straight line through the origin.
B) straight line with a positive vertical intercept.
C) curve with a steadily increasing slope (i.e. ,a curve that is convex from below) .
D) curve with a steadily decreasing slope (i.e. ,a curve that is concave from below) .
Utility Function
(Of an individual) the total utility generated by an individual’s consumption bundle.
Risk-Averse
A characteristic of individuals who prefer certain outcomes over others with equal or potentially higher expected returns but with more uncertainty.
Income
The financial gain earned or received by an individual or entity, usually through work, investments, or other forms of economic activities.
- Identify the distinctions between risk-averse and risk-seeking tendencies, along with their impact on making decisions.
- Grasp the concept and determine the cumulative utility associated with income and its interaction with the inclination towards risk aversion.
Verified Answer
Learning Objectives
- Identify the distinctions between risk-averse and risk-seeking tendencies, along with their impact on making decisions.
- Grasp the concept and determine the cumulative utility associated with income and its interaction with the inclination towards risk aversion.
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