-John's utility of wealth curve is shown in the above figure. He currently has wealth of $20,000. If the state lottery offers a 1 in 10,000 chance of winning $10,000, John will
A) pay whatever price it takes to play.
B) pay $1 to play this game.
C) pay less than $1 to play this game.
D) not be willing to play this game at any price.

Question

-John's utility of wealth curve is shown in the above figure. He currently has wealth of $20,000. If the state lottery offers a 1 in 10,000 chance of winning $10,000, John will
A) pay whatever price it takes to play. 
B) pay $1 to play this game. 
C) pay less than $1 to play this game. 
D) not be willing to play this game at any price.

Quizplus · Accepted Answer

John's utility of wealth curve suggests diminishing marginal utility of wealth. The expected utility of the lottery is less than the utility of his current wealth, so he would pay less than $1 to play.

-John's Utility of Wealth Curve Is Shown in the Above