You Receive a Raise of 3% at Work

question 1

Multiple Choice

You receive a raise of 3% at work.The rate of inflation is reported to be 5%.

• A)Your purchasing power has decreased 2%.
• B)Your purchasing power has increased 2%.
• C)Your purchasing power remains the same.
• D)Your purchasing power is not a variable and therefore is not affected.

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Definitions:

Production Possibility Set

A graph or curve depicting all maximum output possibilities for two or more goods, given a set of inputs.

Marginal Rate of Substitution

The rate at which a consumer is willing to give up one good in exchange for another, while keeping the overall satisfaction or utility constant.

Pareto Optimal

The configuration of resource distribution where making one person more prosperous requires making another person less so.

Utility Function

A formula that translates the bundle of goods and services selected by a consumer into a numerical value representing satisfaction or utility.