Use the Following to Answer Question

question 69

Multiple Choice

Use the following to answer question:
Figure: Differences in Risk Aversion
-(Figure: Differences in Risk Aversion) Use Figure: Differences in Risk Aversion.An important reason that Ernest and Salvatore may differ in their aversion to risk is:

• A)the way their marginal utility is affected by income.
• B)their understanding of risk.
• C)their initial wealth holding or initial income level.
• D)the way their marginal utility is affected by income and their initial wealth holding or initial income level.

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Definitions:

Utility Schedule

A table or graph that shows the total utility or satisfaction that a consumer derives from consuming various quantities of a good or service.

Marginal Utility

The incremental utility or joy received when one more unit of a good or service is consumed.

Total Utility

The absolute gratification obtained through the intake of a certain quantity of products or services.

Marginal Utility

The additional satisfaction or benefit (utility) a consumer derives from consuming one additional unit of a good or service.