1. Consider an individual facing an uncertain outcome. With probability p she receives income y > 0 and with probability 1 - p she receives income 0. She has a strictly increasing and strictly concave Bernoulli utility function u(y), where u(0) = 0. Consider two different ways in which the expected value of the lottery may increase. In the first way the amount of y increases by Ay but the probability p remains the same. In the second way the probability p increases by Ap but y remains the same. Suppose that the change in the expected value of the lottery, AV, is the same in each case. EVALUATE THE FOLLOWING CLAIM: Holding the increase in the expected value of the lottery constant, the increase in expected utility is higher when the probability increases than when the income increases. (HINT: A graph of the Bernoulli utility function would be a good idea)