Gigi Consumes Only Perrier and Cheese

question 76

Multiple Choice

Gigi consumes only Perrier and cheese. In order to maximize her happiness subject to a limited income, Gigi should purchase the amounts of Perrier and cheese at which

• A) the addition to happiness of the last bottle of Perrier is the same as the addition to happiness of the last pound of cheese.
• B) the addition to happiness per dollar spent on Perrier is the same as the addition to happiness per dollar spent on cheese.
• C) she spends all her income.
• D) both b and c
• E) both a and c

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Definitions:

Surpluses

Occurs when the quantity of a good produced exceeds the quantity demanded, often leading to price reductions.

Inflationary Gap

A situation where the demand for goods exceeds supply at the current price levels, leading to an increase in prices and inflation.

Equilibrium GDP

The level of Gross Domestic Product where the aggregate supply equals aggregate demand within an economy, leading to a stable economic condition.

Full Employment GDP

The level of GDP produced when the economy is utilizing all available resources, including labor, at the maximum sustainable rate without causing inflation.