Question

Wealth ​(dollars)	​Olga's utility	Tania's utility
0	0	0
100,000	10	4
200,000	19	8
300,000	27	12
400,000	34	16
500,000	40	20
600,000	45	24
700,000	49	28

800,000	52	32
900,000	54	36

The table shows​ Olga's and​ Tania's utility of wealth schedules.

These schedules tell us that for Olga the pain from a loss​ ______ the pleasure from a gain of equal​ size, and for Tania the pain from a loss​ ______ the pleasure from a gain of equal size.

A.

is greater​ than; equals

B.

is less​ than; is greater than

C.

is greater​ than; is greater than

D.

is less​ than; equals

Answer 1

Tania's utility of wealth schedule indicates that marginal utility is same for every 100,000 increase in wealth and this equal to 4 utils (8 - 4, 12 - 8, etc). However Olga's utility of wealth schedule indicates that marginal utility is falling for every 100,000 increase in wealth and this equal to 4 utils (19 - 10, 27 - 19, etc). This shows that Olga the pain from a loss​ greater than the pleasure from a gain of equal​ size, and for Tania the pain from a loss​ is equal to the pleasure from a gain of equal size.

Option A is correct.