A risk-averse person has a utility function that,with income on the horizontal axis and utility on the vertical axis,as income increases:
A) is a horizontal line.
B) is a vertical line.
C) has constant, positive slope.
D) is increasing at a decreasing rate.
E) is increasing at an increasing rate.

Question

Quizplus · Accepted Answer

A risk-averse person has a diminishing marginal utility of wealth, meaning that as income increases, the increase in utility becomes smaller and smaller (i.e. increasing at a decreasing rate). Therefore, the utility function would be increasing at a decreasing rate.

A Risk-Averse Person Has a Utility Function That,with Income on the Horizontal