Use the following to answer question:
-(Table: The Total Utility of Income After College Expenses)Use Table: The Total Utility of Income After College Expenses.Mr.and Mrs.Smith would be willing to pay as much as _____ for insurance to pay their daughter's tuition and eliminate the uncertainty in the family's income after tuition.
A)$12,000
B)$10,000
C)$8,000
D)$5,000

Question

Use the following to answer question: 
-(Table: The Total Utility of Income After College Expenses)Use Table: The Total Utility of Income After College Expenses.Mr.and Mrs.Smith would be willing to pay as much as _____ for insurance to pay their daughter's tuition and eliminate the uncertainty in the family's income after tuition.
A)$12,000 
B)$10,000 
C)$8,000 
D)$5,000

Quizplus · Accepted Answer

The willingness to pay for insurance to eliminate uncertainty would be up to the point where the expected utility without insurance equals the utility with insurance. Without the specific utility values from the table, the general principle is that individuals are willing to pay a premium (the insurance cost) to avoid the risk of a significant financial loss, ensuring a certain outcome even if it means a higher guaranteed cost.

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