On a Certain Island There Are Only Two Goods, Wheat

question 4

Multiple Choice

On a certain island there are only two goods, wheat and milk. The only scarce resource is land. There are 1,000 acres of land. An acre of land will produce either 13 units of milk or 33 units of wheat. Some citizens have lots of land; some have just a little bit. The citizens of the island all have utility functions of the form U(M, W) = MW. At every Pareto optimal allocation,

• A) every consumer's marginal rate of substitution between milk and wheat is -1.
• B) all citizens consume the same commodity bundle.
• C) the number of units of milk produced equals the number of units of wheat produced.
• D) total milk production is 6,500 units.
• E) None of the above is true at every Pareto optimal allocation.

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Definitions:

Utility Function

A numerical depiction of the ranking of a consumer's preferences among various products or results.

Private Consumptions

Expenditure by households and non-profit institutions serving households on goods and services used for individual consumption.

Total Amount

The aggregate sum of all units or quantities in consideration.

Pareto Optimal

A state of allocation of resources from which it is impossible to reallocate without making at least one individual worse off.