Ellsworth's Utility Function Is U(x, Y) = Min{x, Y}

question 27

Multiple Choice

Ellsworth's utility function is U(x, y) = min{x, y}. Ellsworth has $150 and the price of x and the price of y are both $1. Ellsworth's boss is thinking of sending him to another town where the price of x is $1 and the price of y is $2. The boss offers no raise in pay. Ellsworth, who understands compensating and equivalent variation perfectly, complains bitterly. He says that although he doesn't mind moving for its own sake and the new town is just as pleasant as the old, having to move is as bad as a cut in pay of $A. He also says he wouldn't mind moving if when he moved he got a raise of $B. What are A and B?

• A) A = 50 and B = 50.
• B) A = 75 and B = 75.
• C) A = 75 and B = 100.
• D) A = 50 and B = 75.
• E) None of the above.

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Definitions:

Freud

Sigmund Freud was an Austrian neurologist and the founder of psychoanalysis, a clinical method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Inner Voice

The internal dialogue or stream of consciousness that reflects one's thoughts, beliefs, or internal monologue.

Superego

In psychoanalytic theory, the part of the personality that acts as a moral center, enforcing societal standards and ethics.

Libido

In psychoanalytic theory, it refers to the energy of the sexual drive as a component of the life instinct.