On the Planet Homogenia, Every Consumer Who Has Ever Lived

question 2

Multiple Choice

On the planet Homogenia, every consumer who has ever lived consumes only two goods, x and y, and has the utility function U(x, y) = xy. The currency in Homogenia is the fragel. In this country in 1900, the price of good 1 was 1 fragel and the price of good 2 was 2 fragels. Per capita income was 72 fragels. In 2000, the price of good 1 was 5 fragels and the price of good 2 was 2 fragels. The Laspeyres price index for the price level in 2000 relative to the price level in 1900 is

• A) 3.50.
• B) 2.33.
• C) 3.
• D) 5.50.
• E) It is not possible to determine the Laspeyres price index from this information.

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Definitions:

Opportunities

Options or possibilities for individuals or firms to engage in beneficial activities or investments.

Equity

Fairness or justice in the way people are treated or how resources and wealth are distributed.

Efficiency

A measure of how well resources are used to produce goods and services without waste.

Trade-Off

A comparison of costs and benefits of doing something.