-The Above Figure Shows the Utility of Wealth Curve for a Homeowner

question 155

Multiple Choice

-The above figure shows the utility of wealth curve for a homeowner whose only possession is a $50,000 house. If there is a 20 percent chance that the home could be completely destroyed, would this homeowner buy insurance?

• A) No, because the homeowner is not risk averse.
• B) Yes, at any price because the homeowner is risk averse.
• C) Yes, but only if it costs less than $10,000.
• D) Yes, but only if it costs less than $20,000.

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Definitions:

John Watson

An American psychologist who established the psychological school of behaviorism, emphasizing the study of observable behavior and the role of the environment as a determinant of behavior.

Behaviorism

Watson’s view that science must study observable behavior only and investigate relationships between stimuli and responses.

Tabula Rasa

A theory that individuals are born without built-in mental content, and that all knowledge comes from experience or perception.

John Locke

An English philosopher and physician, widely regarded as one of the most influential Enlightenment thinkers and commonly known as the "Father of Liberalism."