Andrew's Utility Function Is U(x₁, X₂) = 4x²₁ + X₂

question 29

Multiple Choice

Andrew's utility function is U(x₁, x₂) = 4x²₁ + x₂. Andrew's income is $32, the price of good 1 is $16 per unit, and the price of good 2 is $1 per unit. What happens if Andrew's income increases to $80 and prices do not change? (Hint: Does he have convex preferences?)

• A) He will consume 48 more units of good 2 and the same number of units of good 1 as before.
• B) He will increase his consumption of both goods.
• C) He will reduce his consumption of good 2.
• D) He will consume the same number of units of good 2 and 3 more units of good 1 as before.
• E) None of the above.

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Definitions:

Fundamental Attribution Error

The tendency to make attributions to internal causes when focusing on someone else’s behavior.

Behavior

The action or reaction of an entity (usually a person), in response to external or internal stimuli.

Social Perception

The process by which individuals form impressions and make inferences about other people and social situations based on observable cues and contextual information.

Pygmalion Effect

A psychological phenomenon in which higher expectations lead to an increase in performance.