Economics 2150A/B Lecture Notes - Lecture 18: Marginal Utility, Risk Premium, Indifference Curve

• School: Western University
• Department: Economics
• Course: Economics 2150A/B
• Professor: Kristin Denniston

Document Summary

Homework 4: due monday march 24, chapters 14 and 15, under tests and quizzes" on owl. Random event: an event that has several possible outcomes, each of which is uncertain: each outcome occurs with some probability, eg. rolling a die (there are 6 possible outcomes, each with a 1/6 chance of being rolled) If you have listed all of the possible outcomes, their occurrence will sum to 1: 1/6 + 1/6 + 1/6 + 1/6 + 1/6 + 1/6 = 1. We can create a probability distribution for the random event: a probability distribution tells us all of the possible outcomes that could occur, and their associated probabilities of occurrence. [x e(s)]2p(x) (120 100)2(. 3) = 240: standard deviation = variance the higher the standard deviation or variance, the greater the uncertainty of risk. Increasing marginal utility: this person likes a gamble (they get more utility from the gamble than with the same amount of money handed to them)