Bernice in Problem 5 Has the Utility Function U(x, Y)

question 29

Multiple Choice

Bernice in Problem 5 has the utility function u(x, y) = min{x, y}, where x is the number of pairs of earrings she buys per week and y is the number of dollars per week she has left to spend on other things. (We allow the possibility that she buys fractional numbers of pairs of earrings per week.) If she originally had an income of $20 per week and was paying a price of $2 per pair of earrings, then if the price of earrings rose to $5, the compensating variation of that price change (measured in dollars per week) would be closest to

• A) $20.
• B) $41.
• C) $40.
• D) $10.
• E) $39.

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Definitions:

Attitudes And Behaviors

Refers to the relationship between how individuals think and feel about various topics, objects, or individuals and how this affects their actions or reactions in various situations.

Effort Justification

The phenomenon where people attribute greater value to outcomes they had to put effort into achieving.

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.

Psychological Discomfort

Describes a state of emotional unease or distress often triggered by stressful situations, conflicts, or challenging thoughts and beliefs.