The Table Shows the Marginal-Utility Schedules for Goods a and B

question 141

Multiple Choice

The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. If the price of B falls to $1, while the price of A and the consumer's income stay the same, what would be the utility-maximizing combination of goods A and B?

• A) 5 A and 3 B
• B) 4 A and 4 B
• C) 3 A and 5 B
• D) 2 A and 6 B

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Definitions:

Adverse Selection

A situation in which one party in a transaction has more or better information than the other, often leading to a misallocation of resources.

Moral Hazard

A situation in economic theory where one party is willing to take more risks because the negative consequences of the risk will be borne by another party.

Moral Hazard

A situation where one party is more likely to take risks because another party bears the consequences of those risks.

Specific Purpose

A clearly defined and precise goal or objective that a project, action, or entity aims to achieve.