Use the Following to Answer Question

question 16

Multiple Choice

Use the following to answer question:
Figure: Differences in Risk Aversion
-(Figure: Differences in Risk Aversion) Use Figure: Differences in Risk Aversion.Which statement is CORRECT?

• A)Ernest will gain more utility from insurance than will Salvatore.
• B)Salvatore will gain less utility from an increase in income than will Ernest but will lose more utility than will Ernest from a fall in income.
• C)Ernest is more risk-averse than Salvatore.
• D)If either Ernest or Salvatore buys insurance,adverse selection will occur.

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Definitions:

Intermediate Product

An intermediate product refers to a good or service that is utilized in the production process of another good or service, rather than being sold directly to consumers.

Transfer Price

The price at which goods and services are sold between divisions within the same company.

Buying Division

A dedicated department within a company that is responsible for making all purchase-related decisions and transactions.

Selling Division

A segment of a business organization responsible for the external sales of the company’s products or services.