Figure 9-1. The figure shows a utility function.

-Refer to Figure 9-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including
A) the risk-return tradeoff.
B) insurance.
C) diversification.
D) All of the above are correct.

Question

Figure 9-1. The figure shows a utility function.
 
-Refer to Figure 9-1. The properties exhibited by this utility function help to explain various things we observe in the economy, including
A) the risk-return tradeoff. 
B) insurance. 
C) diversification. 
D) All of the above are correct.

Quizplus · Accepted Answer

The utility function exhibited in Figure 9-1 displays decreasing marginal utility, which explains the risk-return tradeoff observed in the economy. Additionally, the function exhibits risk aversion, which helps to explain why individuals purchase insurance and diversify their portfolios. Therefore, all of the above choices are correct.

Figure 9-1. the Figure Shows a Utility Function