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Question 5.Act.11: Try to draw a graph that plots the utility of wealth against...

Try to draw a graph that plots the utility of wealth against wealth for an individual who is indifferent to risk. Explain the shape of the graph line.

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An individual who is indifferent to risk would have a utility function that can be plotted in the form of a straight line, as shown in Figure 5.7 .

This indicates that the satisfaction, or happiness, lost from a fall in wealth will be equal to the satisfaction, or happiness, gained from acquiring an equivalent amount of wealth.

5.A.11

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