Suppose a Decision Maker Has a Utility Function and Is

question 26

Multiple Choice

Suppose a decision maker has a utility function and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80.What is the expected utility of this lottery?

• A) 7.6
• B) 7.9
• C) 8.2
• D) 8.5

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Definitions:

Highly Elastic

refers to the sensitivity of demand or supply to changes in price or other factors, where a small change can cause a significant change in the quantity demanded or supplied.

Highly Inelastic

Describes a situation where supply or demand for a product or service is relatively unresponsive to changes in price.

Unit Elasticity

A situation where a change in the price of a good or service results in a proportional change in the quantity demanded or supplied.

Income Elasticity

A measure of how much the demand for a product changes in response to a change in consumers' income.