A Child Is Given $5

question 220

Multiple Choice

A child is given $5.20 of pocket money to be spent on either hard candies or chocolates. Chocolates cost 40 cents and hard candies 80 cents each. The marginal utilities derived from each product are as shown in the following table. Which combination would give the child the maximum utility out of spending $5.20?

• A)8 chocolates and 2 hard candies
• B)5 chocolates and 4 hard candies
• C)3 chocolates and 5 hard candies
• D)2 chocolates and 4 hard candies

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Definitions:

Undervalued Currency

A currency whose value is lower than what is perceived as its true value based on economic fundamentals or market conditions.

Capital Account

A national account that records transactions involving the purchase and sale of assets, such as property and stocks, between residents of one country and those of others.

Surplus

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.

U.S. Dollar

The official currency of the United States, widely used as a standard of exchange in international transactions.