Yvonne's Allocation Decision After Winning the Lottery

A large technology firm, which holds a dominant position in the operating system market, invests billions in developing a next-generation artificial intelligence. In contrast, a small-scale wheat farmer, operating in a market with thousands of other farmers selling identical crops, does not invest in developing a new, revolutionary irrigation system. Which statement best analyzes the economic incentive behind these different investment decisions?

A researcher models an individual's social preferences using the utility function u(y,z) = y^2 * z^(-1), where 'y' is the individual's own income and 'z' is a colleague's income. If both the individual and the colleague currently have the same income, which of the following scenarios would result in the greatest increase in the individual's utility?

Interpreting Social Preferences in a Utility Function

An individual's social preferences can be modeled with the utility function u(y,z) = y^a * z^b, where 'y' is their own wealth, 'z' is another person's wealth, and the parameter 'a' is assumed to be positive (a > 0). Match each description of a social preference to the parameter conditions that best represent it.

Yvonne's Donation Decision

Consider an individual's preferences modeled by the utility function u(y,z) = y^a * z^b, where 'y' is their own wealth, 'z' is another person's wealth, and both 'a' and 'b' are positive constants.

True or False: If both the individual's wealth and the other person's wealth were to double, the individual's resulting utility would also exactly double, regardless of the specific positive values of 'a' and 'b'.

Social Welfare Policy Evaluation

Critique of a Social Preference Model

In a social preference model represented by the utility function u(y,z) = y^a * z^b, where 'y' is an individual's own wealth and 'z' is another person's wealth, a negative value for the parameter 'b' (i.e., b < 0) indicates a preference that can be described as ____.

An individual's social preferences are modeled by the utility function u(y,z) = y^0.5 * z^0.5, where 'y' is the amount of money they possess, and 'z' is the amount of money a friend possesses. Initially, both the individual and their friend have $100 each. If the individual's money decreases to $64, how much must the friend's money increase for the individual's utility to return to its original level?

An individual's social preferences can be modeled with the utility function u(y,z) = y^a * z^b, where 'y' is their own wealth, 'z' is another person's wealth, and the parameter 'a' is assumed to be positive (a > 0). Match each description of a social preference to the parameter conditions that best represent it.