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

question 8

Multiple Choice

Suppose a consumer buys two goods, $x$ and $y$ and has income of $30. Initially P_x = 3 and P_y and the consumer chooses basket A with x=2 and y=8 . The prices change to P_x = 4 and P_y = 2 and the consumer chooses basket B with x = 7 and y = 1.

• 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:

Supply

The total amount of a product or service available for purchase at any specified price.

Firms

Business organizations engaged in commercial, industrial, or professional activities, aiming to earn a profit.

Profit-Maximizing Output

The level of production at which a firm achieves the maximum possible profits, considering its costs of production and the market price of its goods or services.

Total Revenue

The total income generated from selling goods or services before any expenses are deducted.