Suppose That Installing an Overhead Pedestrian Walkway Would Cost a College

question 56

Multiple Choice

Suppose that installing an overhead pedestrian walkway would cost a college town $50,000.If the walkway is expected to reduce the risk of fatality by 2 percent and the cost of a human life was estimated at $5 million,what would the town do

• A)The town would install the walkway because the estimated benefit is twice the cost.
• B)The town would install the walkway because the estimated benefit equals the cost.
• C)The town would not install the walkway since the cost is twice the estimated benefit.
• D)The town would install the walkway since the cost of even a single life is too great.

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Definitions:

Probability

A numeric representation ranging from 0 to 1 that describes the chance of an event taking place, where 0 is an event that won't occur and 1 is an event that is guaranteed.

Utility Function

A mathematical representation in economics that captures how consumers allocate their expenditure to maximize satisfaction or utility from goods and services.

Expected Utility Maximizer

An expected utility maximizer is an individual who makes choices based on the mathematical expectation of utility, aiming to achieve the highest satisfaction from uncertain outcomes.

Indifference Curves

Graphs that represent various combinations of goods that give a consumer equal utility or satisfaction.