Question 3: Jane has utility function over her net income U(Y)-Y2 a. What are Jane's preferences towards risk? Is she risk averse, risk neutral or risk loving? [Briefly explain your answer] b. Jane drives to work every day and she spends a lot of money on parking meters. She is considering of cheating and not paying for the parking. However, she knows that there is a 1/4 probability of being caught on a given day if she cheats, and that the cost of the ticket is $36. Her daily income is $100. What is the maximum amount of she will be willing to pay for one day parking? c. Paul also faces the same dilemma every single day. However, he has a utility function U(Y)=Y. His daily income is also $100. What is Paul's preference towards risk? Is he risk averse, risk neutral or risk loving? d. If the price of one day parking is $9.25, will Paul cheat or pay the parking meter? Will Jane cheat or pay the parking meter?

Question 3: Jane has utility function over her net income U(Y)-Y2 a. What are Jane's preferences towards risk? Is she risk averse, risk neutral or risk loving? [Briefly explain your answer] b. Jane drives to work every day and she spends a lot of money on parking meters. She is considering of cheating and not paying for the parking. However, she knows that there is a 1/4 probability of being caught on a given day if she cheats, and that the cost of the ticket is $36. Her daily income is $100. What is the maximum amount of she will be willing to pay for one day parking? c. Paul also faces the same dilemma every single day. However, he has a utility function U(Y)=Y. His daily income is also $100. What is Paul's preference towards risk? Is he risk averse, risk neutral or risk loving? d. If the price of one day parking is $9.25, will Paul cheat or pay the parking meter? Will Jane cheat or pay the parking meter?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section: Chapter Questions

Problem 9PA

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