Alfred Derives Utility from Consuming Iced Tea and Lemonade

question 50

Multiple Choice

Alfred derives utility from consuming iced tea and lemonade. For the bundle he currently consumes, the marginal utility he receives from iced tea is 16 utils, and the marginal utility he receives from lemonade is 8 utils. Instead of consuming this bundle, Alfred should:

• A) buy more iced tea and less lemonade.
• B) buy more lemonade and less iced tea.
• C) buy more iced tea and lemonade.
• D) buy less iced tea and lemonade.
• E) none of the above is necessarily correct.

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Definitions:

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.

Simple Interest

Interest calculated on the principal portion of a loan or deposit, without compounding on the interest previously earned.

Original Principal

The initial amount of money borrowed or invested, before the addition of interest or profits.

Compounded Annually

A method of calculating interest where the interest rate is applied once per year to the principal, including any interest from previous periods.