Bobby Consumes Only Chocolate Ice Cream and Vanilla Ice Cream

question 128

Multiple Choice

Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate is 200 and his marginal utility of vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximize his utility, Bobby should

• A) buy more chocolate ice cream and less vanilla ice cream.
• B) buy more vanilla ice cream and less chocolate ice cream.
• C) not change his purchases between chocolate ice cream and vanilla ice cream.
• D) buy no vanilla ice cream.

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Definitions:

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing banking services.

Bonds

Fixed income investment products that represent loans made by the investor to the issuer, typically corporate or governmental, for a defined period of time.

Price Level

An all-encompassing average of the present prices in the economy for goods and services.

Nominal Variable

A variable measured in terms of monetary value that has not been adjusted for inflation, reflecting the current price levels.