ECON 2GG3 Study Guide - Final Guide: Budget Constraint, Indifference Curve
15 Oct 2015
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Expected utility using states of nature outside individuals control (been using: actions can be taken to alter the consumption bundles(/wealth) available in different states of nature, ex if we back up computer files to external discs, we reduce our loss in the event of a hard disc crash, but at a cost (in time, effort, and the external medium itself, ex fire an theft insurance has a cost (premium), but changes the consumption bundle available in the event of burglary or a fire, consumer can choose substitute consumption in one state of nature (no fire) for consumption in another (house burns down), to increase expected utility. Ex. accident insurance with variable face value (insurance buyer can choose coverage amount: each of accident insurance costs " , consumer has of wealth, cna = consumption value in no accident state, ca = consumption value in accident state, without insurance.
