A Utility-Maximizing Consumer Is Currently Spending All of His/her Income

question 29

Multiple Choice

A utility-maximizing consumer is currently spending all of his/her income on two products, A and B. The MU of the last unit of A consumed is 50, the price of A is $25, and the price of B is $10. The MU of the last unit of B consumed is:

• A) 50.
• B) 5.
• C) 2.
• D) 20.

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Definitions:

John Maynard Keynes

A British economist whose ideas fundamentally changed the theory and practice of macroeconomics and economic policies of governments, best known for Keynesian economics.

Classical Economists

Economists from the late 18th and early 19th centuries who focused on the role of free markets in economic development and emphasized the importance of limited government intervention.

Full Employment

The situation in an economy where all who are willing and able to work at prevailing wage rates are employed, with no involuntary unemployment.

Discretionary Fiscal Policy

Involves the use of government spending and tax policies to influence the economy, based on current economic conditions and objectives.