Three Individuals Have $1000 and Identical Preferences for Gum,g,and Cigarettes,s,as

question 82

Multiple Choice

Three individuals have $1000 and identical preferences for gum,g,and cigarettes,s,as measured by the utility function U(g,s) = 10g^0.9a^0.1.The price of gum is $9 and the price of cigarettes is $12.What is the market surplus/shortage at a price of $12 when the supply of cigarettes is 5?

• A) There will be a shortage of 3 cigarettes.
• B) There will be a surplus of 3 cigarettes.
• C) There will be a shortage of 2/3 cigarettes.
• D) There will be a surplus of 2/3 cigarettes.

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