Suppose Jane Has Chosen a Combination of Two Goods, a and B

question 108

Multiple Choice

Suppose Jane has chosen a combination of two goods, A and B, such that MU/P of good A is 10 (MU_A/P_A = 10) , and the MU/P of good B is 10 (MU_B/P_B = 10) . To increase utility with the same amount of money, Jane should:

• A) increase the number of B consumed.
• B) increase the number of A consumed.
• C) increase the number of A and B consumed.
• D) do nothing; she cannot increase utility with the same amount of money.

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Definitions:

Hotelling Rule

An economic theory that addresses how the price of non-renewable resources should increase over time under conditions of efficient extraction and market equilibrium.

Marginal Extraction Cost

The additional cost associated with extracting one more unit of a resource.

Treasury Bill

A short-term government security issued at a discount from the par value and pays no interest, maturing in a year or less.

Treasury Bond

Long-term government debt securities with a fixed interest rate and maturity of more than 10 years.