-John's utility of wealth curve is shown in the above figure. He currently has total wealth of $20,000. If there is a 50 percent chance that his $10,000 car will be stolen, then his expected wealth equals
A) $0.
B) $10,000.
C) $15,000.
D) $20,000.

Question

-John's utility of wealth curve is shown in the above figure. He currently has total wealth of $20,000. If there is a 50 percent chance that his $10,000 car will be stolen, then his expected wealth equals
A) $0. 
B) $10,000. 
C) $15,000. 
D) $20,000.

Quizplus · Accepted Answer

John's expected wealth is calculated by considering the probability of each outcome. With a 50% chance of losing his $10,000 car, his expected wealth is 0.5 * ($20,000 - $10,000) + 0.5 * $20,000 = $15,000.

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