Ralph Wants to Buy Some Milk and a Box of Cereal

question 88

Multiple Choice

Ralph wants to buy some milk and a box of cereal. If Ralph buys 2 quarts of milk at $1 per quart, the box of cereal costs 75 cents. If he buys 3 quarts of milk at $1 per quart, the box of cereal is free. For Ralph, the marginal cost of the third quart of milk is

• A) zero.
• B) 25 cents.
• C) 75 cents.
• D) $1.

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Definitions:

Real Exchange Rate

The relative price of the goods and services of one country compared to those of another when expressed in a common currency.

Foreign Currency

Money or other forms of financial assets denominated in the currency of a country that is not the domestic country of the holder.

National Saving

The total amount of savings in a country, which is comprised of both private savings by households and the savings of the government, representing the difference between a nation’s income and consumption.

Open Economy

An economy that allows for trading and financial transactions with other countries.