Charlie's Utility Function Is X_Ax_B

question 21

Multiple Choice

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

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Definitions:

Schemata

Mental structures that represent generalized ideas or concepts that are used to organize and interpret information.

Semantic Network

A theoretical structure that illustrates the relationships between ideas in a form of networks based on their meanings.

Complex Reasoning

The cognitive process involving the analysis, evaluation, and synthesis of information to solve problems or make decisions.

Working Memory Capacity

The amount of information that an individual can hold in mind and manipulate for a short period.