An Economy Has Two People, Charlie and Doris

question 63

Multiple Choice

An economy has two people, Charlie and Doris. There are two goods, apples and bananas. Charlie has an initial endowment of 6 apples and 6 bananas. Doris has an initial endowment of 12 apples and 3 bananas. Charlie's utility function is U(A C, B C ) = A C B C, where A C is his apple consumption and B C is his banana consumption. Doris's utility function is U(A D, B D ) = A D B D, where A D and B D are her apple and banana consumptions. At every Pareto optimal allocation,

• A) Charlie consumes more bananas per apple than Doris does.
• B) Doris consumes equal numbers of apples and bananas.
• C) Charlie consumes the same number of apples as Doris.
• D) Charlie consumes 18 apples for every 9 bananas that he consumes.
• E) Doris consumes 12 apples for every 3 bananas that she consumes.

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Definitions:

Popcorn

A type of corn kernel which expands and puffs up when heated, often consumed as a snack.

Perfect Complements

Goods that are always used together in fixed proportions, such that an increase in the consumption of one necessitates an equal percentage increase in the other.

Indifference Curves

Graphical representations in economics illustrating different combinations of goods that provide an individual with equal levels of utility.

Optimal Consumption

A state where consumers allocate their income in a way that maximizes their utility, given their preferences and the prices of goods and services.