Charlie Consumes Apples and Bananas

question 13

Multiple Choice

Charlie consumes apples and bananas. His utility function is U(X_A, X_B) = x_Ax²_B. The price of apples is $1 the price of bananas is $2, and his income is $30 per week. If the price of bananas falls to $1

• A) Charlie demands fewer apples and more bananas.
• B) the substitution effect of the fall in banana prices reduces his apple consumption, but the income effect increases his apple consumption by the same amount.
• C) the substitution effect of the fall in the price of bananas reduces his banana consumption but the income effect increases his banana consumption by enough so that his banana consumption rises.
• D) the income used to calculate the substitution effect is higher than his original income, since the change made Charlie better off.
• E) More than one of the above is true.

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Definitions:

English Calvinists

A religious group originating from the 16th century Reformation, emphasizing the sovereignty of God and the doctrine of predestination.

Religious Beliefs

The specific spiritual principles held by an individual or community, centered around faith in a higher power or moral values.

Powhatan

A Native American chiefdom in Virginia, known for its interaction with the English settlers of Jamestown in the early 17th century and for its leader, Chief Powhatan.