Figure 27-3 The Following Figure Shows a Utility Function for Dexter

question 25

Multiple Choice

Figure 27-3
The following figure shows a utility function for Dexter.
-Refer to Figure 27-3. Suppose the vertical distance between the points (0, A) and (0, B) is 12. If his wealth increased from $1,300 to $1,800, then

• A)Dexter's subjective measure of his well-being would increase by less than 12 units.
• B)Dexter's subjective measure of his well-being would increase by more than 12 units.
• C)Dexter would change from being a risk-averse person into a person who is not risk averse.
• D)Dexter would be more likely to buy insurance.

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Definitions:

Purely Competitive Market

An idealized market form where products are identical, allowing for easy entry and exit of firms, leading to perfect information and no control over prices by any single entity.

Wage Rate

The fixed amount of compensation paid to an employee for their services.

Workers

Individuals engaged in any form of employment, contributing labor to produce goods or provide services.

Marginal Productivity Theory

A principle in economics that explains how the value of an economic input is determined by its marginal productivity, suggesting that factors of production are paid at rates equal to their productivity at the margin.