Mary Is Maximizing Utility by Eating Three Pancakes and Two

question 134

True/False

Mary is maximizing utility by eating three pancakes and two eggs. The principle of rational choice says that if there is diminishing marginal utility and the price of eggs rises, Mary will choose to eat more pancakes and fewer eggs.

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Definitions:

In-The-Money

A term describing an options contract that has intrinsic value; for a call, when the underlying asset's price is above the strike price, and for a put, when it's below.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Stock Price

The current price at which a particular stock is bought or sold in the market.

Exercise Price

The price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying security.