Figure 19-2.The figure shows a utility function for Mary Ann.
-Refer to Figure 19-2.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 19-2.The figure shows a utility function for Mary Ann. 
-Refer to Figure 19-2.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

Mary Ann's subjective measure of well-being would increase by less than 5 units because the increase in wealth is likely to have diminishing marginal utility, meaning each additional dollar contributes less to her well-being than the previous one.