Ten Individuals Have $100 and Identical Preferences for Picnics,p,and Kayak

question 96

Multiple Choice

Ten individuals have $100 and identical preferences for picnics,p,and kayak trips,k,where U(p,k) = k^0.5p^0.5.The price of picnics is $5 and the price per kayak trip is $ 10.What is the shortage/surplus in the market when the supply of picnics totals 120?

• A) There is a surplus of 20.
• B) There is a shortage of 20.
• C) The market is in equilibrium. Therefore, there is no surplus/shortage.
• D) There is not enough information to answer this question.

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Definitions:

Actual Interest Rate

The actual rate of interest earned or paid on an investment, loan, or other financial product over a period, typically accounting for compounding.

Discount Method

A valuation technique where a future cash flow or series of cash flows is discounted back to the present to determine its worth.

Actual Interest Rate

The real rate of interest earned or paid after adjusting for compounding and fees.

Discounting

A financial strategy that adjusts the future value of cash flows to their present value, often for analysis or investment decisions.