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Author Question: Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar from the ... (Read 178 times)

CharlieWard

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on: Jun 29, 2018
Suppose Abe is allocating his entire income and he receives 100 units of utility per dollar from the tenth slice of pizza and 200 units of utility per dollar from his second soda.
 
  Is Abe maximizing his utility? Should Abe change his consumption of pizza and soda?

Question 2

The price effect is equal to the
 
  A) substitution effect.
  B) substitution effect plus the income effect.
  C) marginal rate of substitution minus relative prices.
  D) substitution effect minus the income effect.


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SeanoH09

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Abe is not maximizing his utility because his marginal utility per dollar from pizza does not equal his marginal utility per dollar from soda. Abe should consume more soda (because it provides more satisfaction per dollar) and less pizza.

Answer to Question 2

B


CharlieWard

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Reply 2 on: Jun 29, 2018
Excellent

EAN94

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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