In Problem 3, Suppose Sam, a Typical Citizen, Has the Utility

question 19

Multiple Choice

In Problem 3, suppose Sam, a typical citizen, has the utility function U(m, d, h) = m + 13d² - d² - 6h, where d is the number of hours per day that he spends driving around, h is the average number of hours per day spent driving around by other people in his home town, and m is the amount of money he has left to spend on other stuff besides gasoline and auto repairs. Gas and auto repairs cost $1 per hour of driving. If each citizen believes that their own driving will not affect the amount of driving done by others, they will all drive D₁ hours per day. If all citizens drive to maximize the utility of a typical citizen, they will all drive D₂ hours per day, where

• A) D₁ = 8 and D₂ = 4.
• B) D₁ = 6 and D₂ = 3.
• C) D₁ = D₂ = 6.
• D) D₁ = 9 and D₂ = 0.
• E) D₁ = 6 and D₂ = 1.

---

Definitions:

Income Stream

A regular flow of money from an investment, property, or other financial assets.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing or the real yield on savings.

Perfect Substitute

Two or more goods that can be used interchangeably with no loss of utility by the consumer.

Consumption

The process or activity of using goods and services, reflecting the end-use of products that directly satisfies human needs or desires.