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:

Clear And Present Danger

A doctrine used to test whether limitations may be placed on First Amendment freedoms of speech, press, or assembly when the exercise of these rights presents an immediate danger.

Affirmative Action

Policies or measures that favor individuals belonging to groups known to have been discriminated against previously, often related to education and employment.

Future Sum

The amount of money or value to be received or paid at a specified date in the future.

Interest Rate

The fee, represented as a fraction of the initial sum, that a creditor levies on a debtor for asset utilization.