A person will pay $1,000 (and not more) extra for a bigger car that he or she feels is safer. This car will reduce the chance of dying in an automobile accident by 1/550. That means that the buyer is implicitly valuing his or her life at roughly:
A) $5,500.
B) $55,000.
C) $550,000.
D) $5,500,000.

Question

Quizplus · Accepted Answer

The person is willing to pay $1,000 to reduce the risk of dying by 1/550. Therefore, the implicit value of life is $1,000 divided by (1/550), which equals $550,000.

A Person Will Pay $1,000 (And Not More) Extra for a Bigger