Assume That the Marginal Utility of the Third Candy Bar

question 115

Multiple Choice

Assume that the marginal utility of the third candy bar is 15,the marginal utility of the first tube of toothpaste is 12,the price of a candy bar is $1.50 per bar and the price of toothpaste is $2.00 per tube.If Tom buys three candy bars and one tube of toothpaste,is he applying the rational spending rule correctly?

• A) Yes,this is an optimal combination of candy and toothpaste.
• B) No,he should spend less on candy and more on toothpaste.
• C) No,he should spend more on candy and less on toothpaste.
• D) No,he should spend more on both candy and toothpaste.
• E) No,he should spend less on both candy and toothpaste.

---

Definitions:

Repaid

The act of paying back money that was borrowed from a person, bank, or financial institution.

Interest Rate

The ratio at which interest is applied to money loaned by a borrower from a lending party.

Compounded Semi-annually

A financial term indicating the interest on an investment is calculated and added to the principal balance twice every year, enhancing the total return over periods.

Obligation

A duty or commitment to pay money or perform some action.