If you had a windfall of $5,000 in the present time period and you save some of it, your saving behavior would likely be due to the fact that
A)your marginal utility of present income falls as your income goes up.
B)the extra income changes the slope of your time preference indifference curves making then steeper.
C)your indifference curves for present and future income are vertical.
D)your indifference curves for present and future are horizontal.

Question

Quizplus · Accepted Answer

According to the concept of diminishing marginal utility, as our income increases, the marginal utility of each additional unit of income decreases. Therefore, the marginal utility of present income falls as income goes up, which could make individuals more likely to save some of a windfall rather than spend it all immediately.

If You Had a Windfall of $5,000 in the Present