Charlie Consumes Apples and Bananas $\mathbf{U}\left(X_{A}, X_{B}\right)=x_{A} x^{2} B$

question 23

Multiple Choice

Charlie consumes apples and bananas. His utility function is $\mathbf{U}\left(X_{A}, X_{B}\right) =x_{A} x^{2} B$
-refer to scenario above, Charlie's utility function is x_Ax_B.The price of apples used to be $1, the price of bananas used to be $2, and his income used to be $40.If the price of apples increased to $6 and the price of bananas stayed constant, the substitution effect on Charlie's apple consumption would reduce his consumption by

• A)8.33 apples.
• B)13.33 apples.
• C)5 apples.
• D)16.67 apples.
• E)None of the above.

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Definitions:

Willingness to Pay

The maximum amount an individual is prepared to spend on a good or service.

Pumpkin Market

A theoretical or real market where pumpkins are bought and sold, often used to illustrate principles of supply and demand or seasonal markets.

Consumer Surplus

The gap between what consumers are ready to pay in total and what they end up actually paying.

Consumer Surplus

The distinction between the total cost consumers are willing to offer for a good or service and the amount they eventually pay.