On the Planet Hyperion Every Consumer Who Has Ever Lived

question 23

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 10 doggerels per unit and the price of y was 4 doggerels per unit. Paasche price index of prices in 2000 relative to prices in 1850 is

• A)3.50.
• B) 6.
• C) 2.50.
• D) 4.67.
• E) not possible to determine without further information.

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Definitions:

Exchange Rate

The value of one currency for the purpose of conversion to another. It determines how much of one currency can be exchanged for another currency.

Reciprocal

Pertaining to a mutual exchange or relationship where two parties give and take symmetrically.

Functional Currency

The currency of the primary economic environment in which an entity operates and generates cash flows.

Currency

A medium of exchange for goods and services, typically issued by a government.