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

question 16

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 $19 per week and was paying a price of $8 per pair of earrings, then if the price of earrings rose to $10, the compensating variation of that price change (measured in dollars per week) would be closest to

• A) $4.22.
• B) $9.44.
• C) $3.45.
• D) $8.44.
• E) $7.44.

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Definitions:

Positive Outcomes

Favorable results or effects that arise from a particular action, strategy, or process.

Negative Outcomes

Unfavorable or adverse results from actions, decisions, or situations.

Association Power

The influence or authority an entity or individual gains through forming networks or alliances with others.

Reciprocity

A social norm where a positive action leads to another positive action, fostering mutual exchange and cooperation among individuals.