Use the Following to Answer Questions

question 52

Multiple Choice

Use the following to answer questions:
Figure: Differences in Risk Aversion
-(Figure: Differences in Risk Aversion) Look at the figure Differences in Risk Aversion. Which of the following statements is CORRECT?

• A) Ernest will gain more utility from insurance than will Salvatore.
• B) Salvatore will gain less utility from an increase in income than Ernest but will lose more utility than Ernest from a fall in income.
• C) Ernest is more risk-averse than Salvatore.
• D) If either Ernest or Salvatore buys insurance, adverse selection will occur.

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Definitions:

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers.

Market Equilibrium

A situation in a market where the quantity demanded by consumers equals the quantity supplied by producers, leading to a stable price for the product or service.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, typically measured above the supply curve.

Well-Defined Property Rights

Legal parameters that establish ownership and delineate the use of resources or assets.