Figure 14-2

question 186

Multiple Choice

Figure 14-2. The figure shows a utility function for Mary Ann.
-Refer to Figure 14-2. Suppose the vertical distance between the points (0, A) and (0, B) is 5. If her wealth increased from $1,050 to $1,350, then

• A)Mary Ann's subjective measure of her well-being would increase by less than 5 units.
• B)Mary Ann's subjective measure of her well-being would increase by more than 5 units.
• C)Mary Ann would change from being a risk-averse person into a person who is not risk averse.
• D)Mary Ann would change from being a person who is not risk averse into a risk-averse person.

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Definitions:

Classical Theory

in economics, refers to a school of thought that emphasizes free markets, the role of competition, and the minimal intervention of government in the economy, foundational to later economic theories.

Wages And Prices

The relationship and dynamics between the compensation paid to labor and the cost of goods and services in an economy.

Full Employment

A situation in an economy where all available labor resources are being used in the most efficient way possible, typically reflected by the absence of cyclical unemployment.

Keynes

Relates to John Maynard Keynes, a UK-based economist whose notions significantly altered macroeconomics theory and the financial policies of governments.