Mr Inflexible's Utility Function Is U(x₁,x₂)= Min(x₁,x₂)

question 54

Multiple Choice

Mr. Inflexible's utility function is U(x₁,x₂) = min(x₁,x₂) . The price of x₁ is $2 including a $1 excise tax, the price of x₂ is $2, and Mr. Inflexible's budget is $120. Imagine substituting a lump- sum tax for the excise tax. If both taxes leave Mr. Inflexible on the same indifference curve, then the
Lump- sum tax is:

• A)$30.
• B)$10.
• C)$20.
• D)$50.

---

Definitions:

Risk Exposure

Risk exposure is the measure of potential future losses that may result from business activities or investment decisions, due to risks that have been taken.

Variable-Rate Loan

A loan in which the interest rate can change over time, based on an underlying benchmark interest rate or index.

Interest Rate Cap

A financial derivative contract that limits the maximum interest rate a borrower has to pay on a variable-rate loan.

Futures Contracts

Standardized agreements to buy or sell a commodity or financial asset at a future date and price.