Assume That a Consumer Purchases a Combination of Product a and Product

question 310

Multiple Choice

Assume that a consumer purchases a combination of product A and product B such that the MUₐ /Pₐ = 3 and MUᵦ /Pᵦ = 5. To maximize utility without spending more money, the consumer should

• A)purchase more of product A and less of product B.
• B)purchase less of product A and more of product B.
• C)purchase more of both product A and product B.
• D)make no change in purchases of products A and B.

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Definitions:

Social Cost

The total cost of an activity, including both private costs borne by the producer and external costs suffered by others.

External Costs

Costs incurred by someone who does not participate directly in a transaction or activity, often relating to environmental or societal impacts.

Socially Optimal

A condition or point at which the total benefits to society are maximized, often considered in the context of production or distribution of goods and services.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often seen in environmental pollution where the public bears the cost not reflected in the market price.