On the Planet Homogenia Every Consumer Who Has Ever Lived

question 7

Multiple Choice

On the planet Homogenia every consumer who has ever lived consumes only two goods, x and y, and has the utility function U(x, y) = xy.The currency in Homogenia is the fragel.In this country in 1900, the price of good 1 was 1 fragel and the price of good 2 was 2 fragels.Per capita income was 84 fragels.In 2000, the price of good 1 was 4 fragels and the price of good 2 was 2 fragels.The Laspeyres price index for the price level in 2000 relative to the price level in 1900 is

• A)4.50.
• B)2.50.
• C)2.
• D)3.
• E)not possible to determine from this information.

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Definitions:

Actual Price

The price at which a good or service is sold in the market, as opposed to its listed or theoretical price.

Producer Surplus

The difference in the expected remuneration by producers for offering a good or service and the actual revenue they secure.

Purely Competitive

A market structure characterized by many buyers and sellers, where each seller is a price taker and homogeneous products are offered.

Market

An economic system that allows buyers and sellers to exchange goods and services, determining prices through the laws of supply and demand.