Charlie Consumes Apples and Bananas $\mathbf{U}\left(X_{A}, X_{B}\right)=x_{A} x^{2} B$

question 20

Multiple Choice

Charlie consumes apples and bananas. His utility function is $\mathbf{U}\left(X_{A}, X_{B}\right) =x_{A} x^{2} B$
-refer to scenario above, Charlie's utility function is x_Ax_B.The price of apples used to be $1, the price of bananas used to be $2, and his income used to be $40.If the price of apples increased to $4 and the price of bananas stayed constant, the substitution effect on Charlie's apple consumption would reduce his consumption by

• A)15 apples.
• B)3 apples.
• C)7.50 apples.
• D)12.50 apples.
• E)None of the above.

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Definitions:

Discount

A reduction from the usual cost of something, typically provided to incentivize purchase or reward customers.

Effective Interest Method

A method of calculating the amortized cost of a bond and of allocating interest expense over the bond's life, based on the bond's yield at issuance.

Premium on Bonds Payable

The amount by which a bond's selling price exceeds its face value, reflecting higher-than-market interest rates.

Interest Payable

A liability account on a company's balance sheet representing the amount of interest expense that has been incurred but not yet paid as of the reporting date.