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

question 17

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 $85, then her net consumer's surplus

• A) falls by 1,137.50.
• B) falls by 3,137.50.
• C) falls by 525.
• D) increases by 568.75.
• E) increases by 2,275.

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Definitions:

Budget Constraint

A limitation on the consumption choices of individuals based on their income and the prices of goods and services.

Income

Regular earnings from employment or investment.

Budget Constraint

The limitations on the consumption choices of an individual or household as a result of limited income and finite prices of goods and services.

CDs

Compact Discs, a digital optical disc data storage format that was widely used for storing music and other data.