Illustrate what is the maximum amount he or she would pay

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Reference no: EM1358036

Assume x and y are the only two goods a person consumes. If after a rise in pX the quantity demanded of y increases. Evaluate the following as true or false and explain. Support your explanation with a graph.

The income effect dominates the substitution effect for good y.

Suppose a person's utility of wealth is given by

U(W) = w^0.5

and his or her initial wealth is 10,000. Illustrate what is the maximum amount he or she would pay for insurance against a 50 percent chance of losing 3,600?

Which of the following utility functions would indicate the most (relative) risk averse behavior?

a. U(W) = W.

b. U(W) = w^0.5 .

c. U(W) = ln W.

d. U(W) = -1/W.

EXPLAIN your result in 1-3 sentences.

Reference no: EM1358036

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