Hillary Has an Initial Endowment of $500 and Is Interested

question 18

Multiple Choice

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $60, Hillary sees the doctor 3 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $170.

• A)Hillary will be made better off by health care reform.
• B)Hillary violates the Weak Axiom of Revealed Preference.
• C)We cannot tell how health care reform will affect Hillary.
• D)Hillary will be made worse off by health care reform.
• E)Hillary violates the Strong Axiom of Revealed Preference.

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Definitions:

Price Ceiling

A government-imposed limit on how high a price is charged for a product or service.

Price Control

Government-imposed limits on the prices that can be charged for goods and services in the market, aimed at managing affordability and stabilizing the economy.

Shortage

A condition in which the amount of a good offered for sale by producers is less than the amount demanded by buyers at the existing price. An increase in price would eliminate the shortage.

Price Ceiling

A legal maximum price that can be charged for a good or service, above which it cannot rise, often set by government.