Suppose a Consumer Buys Two Goods $x$ And $y$ , and Has Income of $30

question 48

Multiple Choice

Suppose a consumer buys two goods, $x$ and $y$ , and has income of $30. Initially P_x = 3 and P_y = 3 and the consumer chooses basket $A$ with x =5 and y= 5. The prices change to P_x = 4 and P_y = 2 and the consumer chooses basket $B$ with x = 1 and y = 13.

• A) These choices are consistent with utility maximization.
• B) These choices are not consistent with utility maximization.
• C) With this information it is not possible to determine if these choices are consistent with utility maximization.
• D) Basket \(B\) must be strictly preferred to basket \(A\) .

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Definitions:

Rate Of Yield

The earnings generated and realized on an investment over a particular period of time, expressed as a percentage.

Preferred Stock

A category of corporate ownership that possesses a superior right to the company's assets and profits compared to common stock, typically featuring stable dividend payouts.

Par

The face value of a bond or stock; for bonds, it's the amount to be repaid at maturity, and for stocks, it's a nominal dollar value used for accounting.

Dividend

A portion of a company's earnings distributed to its shareholders as a return on investment.