Suppose the Price of Soda Is $2 Each and the Price

question 337

Multiple Choice

Suppose the price of soda is $2 each and the price of a pizza slice is $4 each. Jean maximizes utility and buys only sodas and slices of pizza. If the price of a soda increases to $3 each, Jean's marginal utility per soda

• A) will increase and she'll buy more soda.
• B) will decrease and she'll buy fewer sodas.
• C) will decrease and she'll buy more pizza.
• D) Both B and C are correct.

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Definitions:

Investment Decisions

Choices made by individuals or firms regarding the allocation of resources to different assets or projects with the expectation of earning a return.

Correlation

A numerical indicator that captures how much two variables move in tandem, showing both how strong their linkage is and in what direction it lies.

Risk-adjusted Discount Rates

Discount rates that are adjusted to reflect the risk of an investment, used in calculating the present value of expected future cash flows.

Unsystematic Risk

The risk associated with a specific company or industry, which can be reduced through diversification.