The Price of Gin Has Risen from $7 to $9

question 189

Multiple Choice

The price of gin has risen from $7 to $9 per bottle,the price of cocktail onions has fallen from $6 to $5 per jar,and Elizabeth's income has stayed fixed at $46 per week.Since the price changes,Elizabeth has been buying 4 bottles of gin and 2 jars of cocktail onions per week.At the original prices,4 bottles of gin and 2 jars of cocktail onions would have

• A)exactly exhausted her income.
• B)cost more than her income.
• C)cost less than her income.
• D)could have maximized her satisfaction given her budget constraint.

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Definitions:

Optimal Allocation

The most efficient distribution of resources within an economy to maximize the output or welfare.

MB = MC

A principle in economics indicating the optimal level of output or consumption, where the marginal benefit (MB) equals the marginal cost (MC).

Marginal Benefit

The added utility or pleasure that comes from the consumption of one more unit of a good or service.

Marginal Cost

The escalation in aggregate cost linked to the fabrication of an extra item of a good or service.