The Relative Price of Beer to Bacon Is 2:1

question 46

Multiple Choice

The relative price of beer to bacon is 2:1.If Bob's current consumption is at a level where MU_beer/MU_bacon is 1:2,then to maximize total utility Bob must

• A)consume more beer and less bacon.
• B)not change his current consumption of beer and bacon.
• C)consume less beer and more bacon.
• D)raise the price of beer.
• E)consume twice as much beer and half as much bacon.

---

Definitions:

Perpetuity

A type of annuity that lasts forever, providing payments that continue indefinitely.

Yield

The income return on an investment, expressed as a percentage of the investment’s cost or current market value.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, often noted in years.

Yield Spread

The difference between the yields of two bonds with differing credit qualities, maturities, or issuers.