Say a Consumer Is Choosing Between Red Wine and White

question 39

Multiple Choice

Say a consumer is choosing between red wine and white wine. The price of red wine is 20 and the price of white wine is 10. If the marginal rate of substitution is 1, and if red wine is on the horizontal axis then the consumer is purchasing:

• A)Too much red wine
• B)Too much white wine
• C)Just the right amount of both goods
• D)Purchasing more than what her income would allow

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Definitions:

Third-degree Price Discrimination

A pricing strategy where a firm charges different prices to different groups of consumers for the same product, based on their willingness to pay.

Tennis Lessons

Instruction or training sessions focused on improving a person's skills and understanding of the game of tennis, offered by professionals or experienced players.

Producer Surplus

The discrepancy between the amount sellers are prepared to take for a product or service and the actual payment they get.

Consumer Surplus

The difference between the maximum price a consumer is willing to pay for a good or service and the actual market price they pay.