During a Study Session for an Economics Exam with Three

question 31

Multiple Choice

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume.Peter explained that 'To maximise his utility, this consumer must equate the marginal utility per dollar for pizza and Coca-Cola.' Was Peter's analysis correct?

• A)Peter described one of the conditions necessary for utility maximisation.The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola.
• B)Peter's statement is correct.
• C)Peter's statement is correct but we must also assume that the consumer is rational.
• D)Peter describes one of the conditions necessary for utility maximisation.The second condition is that total spending on both goods must equal the amount available to be spent.

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Definitions:

Lemonade Market

A hypothetical or real market scenario used to illustrate the principles of supply and demand, usually involving the sale of lemonade.

Surplus

An excess of production or supply over demand, often leading to lower prices or wasted resources.

Shortage

In economics, a shortage occurs when the demand for a product or service exceeds its supply at a given price, often leading to increased prices and queuing.

Equilibrium

A state in which demand and supply are balanced, often resulting in a stable market condition where there is no tendency for change until external factors intervene.