Ron Starts Out in Consumer Equilibrium, Consuming Two Goods, X

question 78

Multiple Choice

Ron starts out in consumer equilibrium, consuming two goods, X and Y. Ron's income rises. At this point, we can definitely conclude that

• A)MUX/PX > MUY/PY, and then Ron increases his consumption of X.
• B)MUX/PX > MUY/PY, and then Ron decreases his consumption of X.
• C)MUX/PX < MUY/PY, and then Ron increases his consumption of X.
• D)MUX/PX < MUY/PY, and then Ron decreases his consumption of X.
• E)none of the above.

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Definitions:

Unsystematic Risk

The risk associated with a specific issuer of a security or investment, which can be mitigated through diversification.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio to minimize the impact of any single investment's performance.

Portfolio Theory

A framework for constructing a portfolio of assets in such a way that it optimizes the balance between risk and return.

Risk Aversion

The reluctance to take on investments with higher levels of uncertainty or potential for loss.