Consider the Following Scenario When Answering the Following Questions

question 159

Multiple Choice

Consider the following scenario when answering the following questions:
Ivett and Desiree are considering playing a game called Matching Fifties.In this game,Ivett and Desiree will each place a $50 bill on the table.Both players will then toss a fair coin.If both Ivett and Desiree toss heads or if they both toss tails,Ivett wins the $100 on the table.If one woman tosses heads and the other tosses tails,Desiree wins the $100 on the table.
-Ivett decides that she is not willing to play this game because a loss of $50 to Desiree will cause her to lose more utility than she should gain if she won $50 from Desiree.Ivett would be considered ________,but if she was ________,she would be willing to play the game.

• A) risk loving; risk averse
• B) risk neutral; risk averse
• C) risk averse; risk neutral
• D) risk loving; risk neutral
• E) risk neutral; risk loving

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Definitions:

Total Saving

The sum of personal savings, plus business savings (undistributed corporate profits), and government surplus in an economy.

Disposable Income

Financial reserves allocated for households for expenditures and savings following income tax reductions.

APC

Average Propensity to Consume, which is the ratio of total consumption to total income.

Saving

The portion of income not spent on consumption but reserved for future use, often placed in banks, investments, or other financial instruments for growth.