Figure 9-2. The figure shows a utility function for Mary Ann.

-Refer to Figure 9-2. 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 9-2. The figure shows a utility function for Mary Ann.
 
-Refer to Figure 9-2. 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

The vertical distance between the points (0, A) and (0, B) represents the maximum amount Mary Ann would be willing to pay to eliminate risk. Therefore, the increase in wealth from $1,050 to $1,350 will not eliminate all of Mary Ann's risk aversion, and her subjective measure of well-being will increase by less than 5 units.