If a Consumer Must Spend Her Entire Income on Some

question 67

Multiple Choice

If a consumer must spend her entire income on some combination of two commodities and chooses to spend it all on just one of the commodities then:

• A) the other commodity is an economic bad.
• B) the other commodity must have zero marginal utility.
• C) the other commodity generates less utility per dollar spent on the good.
• D) the two commodities must be perfect substitutes.

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Definitions:

Price Searchers

Firms or individuals that have the flexibility to set their prices because they offer unique products or services and face little to no direct competition.

Entry Barriers

Impediments that make it difficult for new participants to enter a specific industry or business field.

Monopolistic Competition

A term often used by economists to describe markets characterized by a large number of sellers that supply differentiated products to a market with low barriers to entry. Essentially, it is an alternative term for a competitive price-searcher market.

Marginal Revenue

Extra profit generated from the sale of one more unit of a product or service.