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

question 229

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 entirely destroyed, would this person buy a $20,000 insurance policy to replace the house if destroyed?

• A) No, it is too expensive.
• B) No, he is not risk averse.
• C) Yes, the homeowner would pay even more.
• D) Yes, this is the most the homeowner would pay.

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