Homework Answers
The curve is bent towards the vertical axis that is towards the utility therefore the individual is risk averse.
As we can see from the curve the individual prefers lower risk. See the graph the individual prefers 67.6 income against an income of 75 for the same level of utility that is 240.
Therefore, individual must be risk averse.
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Utility 50 75 Income (5) 59 Figure 5.2.2 The individual pictured in Figure 5.2.2: must be...
An individual with a constant marginal utility of income will be: o risk neutral risk averse....
An individual with a constant marginal utility of income will be: o risk neutral risk averse. risk loving insufficient information for a decision
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8. An individual with utility function over money u(w) = 8Vw has $C in cash and...
8. An individual with utility function over money u(w) = 8Vw has $C in cash and a lottery ticket that pays $W if it wins and nothing if it loses. The probability of winning is .. Suppose an insurance is available at price $p per unit, where each unit of insurance pays $1 if the ticket does not win and nothing if it wins. (a) Is the individual risk averse, risk neutral, or risk loving? (b) What is the fair...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual risk-averse, risk-neutral, or risk-loving? Does it depend on w? (b) Suppose the individual has initial wealth ¥W and faces the possible loss of Y". The probability that the loss will occur is . Suppose insurance is available at price p, where p is not necessarily the fair price. Find the optimal amount of insurance the individual should buy. You may assume that the solution...
3. The table below shows the relationship between income and total utility for Jane. Use this...
3. The table below shows the relationship between income and total utility for Jane. Use this to answer (a) and (b) below. Income Total Utility 5,000 10,000 15,000 20,000 25,000 30,000 12 30 36 40 42 (a) (b) Is Jane risk averse, risk neutral or risk loving? Explain Jane currently earns S15,000 in a riskless investment. Alternatively, she could invest in a project that has a 0.5 probability of yielding a S30,000 and a 0.5 probability of yielding $10,000. Should...
please help 0/0.27 pts Incorrect Question 15 Figure 5.2 Utility 300 250 240 200 100 25...
please help
0/0.27 pts Incorrect Question 15 Figure 5.2 Utility 300 250 240 200 100 25 Sincome 50 100 67.5 75 The individual pictured in Figure 5.2 would receive a utility of 250 from a sure $75. is one for whom income is a measure of well-being. would receive a utility of 300 from a sure $75. would receive a utility of 300 from a 50% chance of $100 and a 50% chance of $50. prefers a 50% chance of...
5. Expected Utility Suppose there are lotteries: Lotter 1: 50% chance of getting 100 million and...
5. Expected Utility Suppose there are lotteries: Lotter 1: 50% chance of getting 100 million and 50% chance of getting 500 million Lotter 2: 50% chance of getting 200 million and 50% chance of getting 400 million two If I prefer Lottery 1 to Lottery 2, I am risk averse or risk neutral or risk seeking?
intermediate micro 4. Steve's utility function over leisure and consumption is given by NLY) - min...
intermediate micro
4. Steve's utility function over leisure and consumption is given by NLY) - min (31.7. Wage rate is w and the price of the composite consumption good is p=1. (a) Suppose w = 5. Find the optimal leisure consumption combination. What is the amount of hours worked? (b) Suppose the overtime law is passed so that every worker needs to be paid 1.5 times their current wage for hours worked beyond the first 8 hours, Will this law...
1, 2, assume that the individual`s utility function is given by: An individual with an income of 1000 is considering...
1, 2, assume that the individual`s utility function is given by: An individual with an income of 1000 is considering the purchase of a risky asset for $250. There is a 40% chance the asset will earn $1000 and a 60% chance it will be worthless. Will the individual purchase this asset? What is the cost of risk for this individual if the asset is purchased? How much will the cost of risk be if a 2nd identical person is...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2)...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm where ct = consumption in period t and a + b = 1. Her income in period one is 11 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
An individual with a constant marginal utility of income will be: o risk neutral risk averse. risk loving insufficient information for a decision
a. If your are offered a gift card valued $50 or the chance at a raffle for a giftcard valued $100, with a 50% chance at getting the giftcard or a 50% chance of getting nothing, which would you choose? Given this answer explain whether you are risk averse, risk loving, or risk neutral and why. 30 50 75 100 7) The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance...
8. An individual with utility function over money u(w) = 8Vw has $C in cash and a lottery ticket that pays $W if it wins and nothing if it loses. The probability of winning is .. Suppose an insurance is available at price $p per unit, where each unit of insurance pays $1 if the ticket does not win and nothing if it wins. (a) Is the individual risk averse, risk neutral, or risk loving? (b) What is the fair...
6. Consider an individual whose utility function over money is u(w)= 1+2w2. (a) Is the individual risk-averse, risk-neutral, or risk-loving? Does it depend on w? (b) Suppose the individual has initial wealth ¥W and faces the possible loss of Y". The probability that the loss will occur is . Suppose insurance is available at price p, where p is not necessarily the fair price. Find the optimal amount of insurance the individual should buy. You may assume that the solution...
3. The table below shows the relationship between income and total utility for Jane. Use this to answer (a) and (b) below. Income Total Utility 5,000 10,000 15,000 20,000 25,000 30,000 12 30 36 40 42 (a) (b) Is Jane risk averse, risk neutral or risk loving? Explain Jane currently earns S15,000 in a riskless investment. Alternatively, she could invest in a project that has a 0.5 probability of yielding a S30,000 and a 0.5 probability of yielding $10,000. Should...
please help
0/0.27 pts Incorrect Question 15 Figure 5.2 Utility 300 250 240 200 100 25 Sincome 50 100 67.5 75 The individual pictured in Figure 5.2 would receive a utility of 250 from a sure $75. is one for whom income is a measure of well-being. would receive a utility of 300 from a sure $75. would receive a utility of 300 from a 50% chance of $100 and a 50% chance of $50. prefers a 50% chance of...
5. Expected Utility Suppose there are lotteries: Lotter 1: 50% chance of getting 100 million and 50% chance of getting 500 million Lotter 2: 50% chance of getting 200 million and 50% chance of getting 400 million two If I prefer Lottery 1 to Lottery 2, I am risk averse or risk neutral or risk seeking?
intermediate micro
4. Steve's utility function over leisure and consumption is given by NLY) - min (31.7. Wage rate is w and the price of the composite consumption good is p=1. (a) Suppose w = 5. Find the optimal leisure consumption combination. What is the amount of hours worked? (b) Suppose the overtime law is passed so that every worker needs to be paid 1.5 times their current wage for hours worked beyond the first 8 hours, Will this law...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm where ct = consumption in period t and a + b = 1. Her income in period one is 11 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
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