Ms Quasimodo in Problem 3 Has the Utility Function U(x

question 7

Multiple Choice

Ms. Quasimodo in Problem 3 has the utility function U(x, m) , where x is her consumption of earplugs and m is money left over to spend on other stuff. If she has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $75, then her net consumer's surplus

• A) falls by 937.50.
• B) falls by 625.
• C) falls by 2,937.50.
• D) increases by 468.75.
• E) increases by 1,875.

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Definitions:

Tender of Payment

An offer of money or its equivalent to satisfy a debt, made by a debtor to a creditor.

Face Amount

The sum of money stated on the face of a financial document, such as an insurance policy, bond, or certificate, that is payable at maturity.

Interest Accrued

Interest that has been earned but not yet paid.

Without Recourse

A term indicating that the holder of a financial instrument cannot demand payment from the original issuer or underwriter in the event of non-payment by the borrower.