A team of researchers has conducted a study of the well-being of the citizens of the island nation of Zarasa. Using a scale from 1 (least happy) to 10 (most happy), the researchers find that citizens who earn 100 Zarutas per year have a mean happiness of 2.0, those who earn 200 Zarutas per year have a mean happiness of 6.0, and those who earn 300 Zarutas per year have a mean happiness of 7.0. The researchers should make which of the following conclusions?
A) The utility of Zarasians increases with income.
B) The marginal utility of Zarasians increases with income.
C) The marginal utility of Zarasians decreases with income.
D) both A and B
E) both A and C

Question

Quizplus · Accepted Answer

The mean happiness of citizens increases as income increases, indicating that income has a positive effect on well-being (choice A). However, the increase in mean happiness between the 100 and 200 Zaruta income levels is much greater than the increase between the 200 and 300 Zaruta income levels. This suggests diminishing marginal utility of income, meaning that the increase in happiness from an additional Zaruta is smaller for those already earning a higher income (choice C). Therefore, the correct answer is E, both A and C.

A Team of Researchers Has Conducted a Study of the Well-Being