Refer to the Diagrams, Which Show Identical Marginal Utility from Income

question 320

Multiple Choice

Refer to the diagrams, which show identical marginal utility from income curves for Singer and Catalano. If a given income of $20,000 is initially distributed so that Singer receives $15,000 and Catalano $5,000, the marginal utility

• A)of the last dollar of income will be greater for Catalano than for Singer.
• B)derived from the last dollar will not be comparable between the two income receivers.
• C)of the last dollar of income will be the same for both Singer and Catalano.
• D)of the last dollar of income will be greater for Singer than for Catalano.

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Definitions:

Rate of Return

The percentage of net gain or loss on an investment over a specified period, showing the efficiency of an investment.

Fair Game

An investment prospect that has a zero risk premium.

Risk Premium

The extra return above the risk-free rate that investors require to compensate them for choosing to invest in a risky asset.

Portfolio Volatility

A measure of the dispersion of returns for a given security or market index, indicating how much the total value of the portfolio's assets fluctuates over time.