Figure 14-2. The figure shows a utility function for Mary Ann.
-Refer to Figure 14-2. Suppose the vertical distance between the points (0, A) and (0, B) is 5. If her wealth increased from $1,050 to $1,350, then
A)Mary Ann's subjective measure of her well-being would increase by less than 5 units.
B)Mary Ann's subjective measure of her well-being would increase by more than 5 units.
C)Mary Ann would change from being a risk-averse person into a person who is not risk averse.
D)Mary Ann would change from being a person who is not risk averse into a risk-averse person.

Question

Figure 14-2. The figure shows a utility function for Mary Ann. 
-Refer to Figure 14-2. Suppose the vertical distance between the points (0, A) and (0, B) is 5. If her wealth increased from $1,050 to $1,350, then
A)Mary Ann's subjective measure of her well-being would increase by less than 5 units. 
B)Mary Ann's subjective measure of her well-being would increase by more than 5 units. 
C)Mary Ann would change from being a risk-averse person into a person who is not risk averse. 
D)Mary Ann would change from being a person who is not risk averse into a risk-averse person.

Quizplus · Accepted Answer

The vertical distance between (0, A) and (0, B) represents the marginal utility of wealth for Mary Ann. If the distance is 5 and her wealth increases by $300, her new marginal utility of wealth would be lower than 5. This means that her subjective measure of well-being would increase by less than 5 units.