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:

Price Elasticity

A measure in economics of how the quantity demanded of a good or service changes in response to a change in its price.

Quantity Supplied

The amount of goods or services that producers are willing and able to sell at a specific price.

Inferior Good

A type of product for which demand decreases as the income of the consumer increases.

Cross Elasticity

Cross elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good, identifying substitute or complementary relationships.