Suppose There Are 10 Apples and 10 Oranges in the Economy

question 12

Multiple Choice

Suppose there are 10 apples and 10 oranges in the economy. Joe is currently consuming 4 apples and 5 oranges, and Jane is consuming 6 apples and 5 oranges. At this allocation, Joe's marginal utility of apples is 3, and his marginal utility of oranges is 5. Jane's marginal utility of apples is 6, and her marginal utility of oranges is 10. The current price of apples is $4 and the current price of oranges is $5. To reach a competitive equilibrium, the required price adjustment is:

• A) a decrease in the apple price relative to the orange price.
• B) a decrease in the orange price relative to the apple price.
• C) no change in the relative prices.
• D) an increase in both prices.

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Definitions:

Retained

Often used in financial contexts to describe profits kept in a company rather than distributed to shareholders; can also refer to information or items kept or preserved.

Interaction Term

A variable in a statistical model that captures the effect of two or more variables acting together on a dependent variable.

First-order Model

A mathematical or statistical model that represents systems or processes using first-degree equations or relationships.

Significance Level

The probability of rejecting the null hypothesis when it is actually true, often denoted by alpha.