On the Planet Hyperion, Every Consumer Who Has Ever Lived

question 15

Multiple Choice

On the planet Hyperion, every consumer who has ever lived has a utility function U(x, y) = min{x, 2y}. The currency of Hyperion is the doggerel. In 1850 the price of x was 1 doggerel per unit and the price of y was 2 doggerels per unit. In 2000 the price of x was 11 doggerels per unit and the price of y was 4 doggerels per unit. The Paasche price index of prices in 2000 relative to prices in 1850 is

• A) 6.50.
• B) 5.
• C) 2.75.
• D) 3.75.
• E) It is not possible to determine the Paasche price index without further information.

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Definitions:

Customary Pricing

A pricing strategy where the price is based on what the market expects to pay, often influenced by tradition or standard practice.

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