Carlos Consumes Only Two Goods, Apples and Bananas

question 13

Multiple Choice

Carlos consumes only two goods, apples and bananas.His utility function is given by U(x, y) = min{x, 2y}.He is endowed with w_a apples and w_b bananas.Unaware that prices are about to change, Carlos buys the quantities of apples and bananas that maximize his utility subject to his budget constraint.After he has made his purchases but before he has eaten them, the relative prices change.Carlos is then free to make further trades at the new relative prices if he wishes.

• A)Carlos will definitely be better off after the price change.
• B)Carlos will definitely be worse off after the price change.
• C)Carlos will be better off after the price change if the price of the good for which he is a net seller rises relative to the price of the other good.
• D)Carlos will be better off after the price change if the price of the good for which he is a net buyer rises relative to the price of the other good.
• E)Carlos's utility will not be affected by the price change.

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Definitions:

Unsuspecting Buyer

A consumer who purchases goods or services without being aware of all the relevant information, often leading to disadvantageous situations.

Auto Transmission

A type of vehicle transmission that automatically changes gear ratios as the vehicle moves, without input from the driver.

Adverse Selection

A situation in insurance and other markets where buyers and sellers have different information, leading those more likely to produce negative outcomes to participate more actively.

Quality Assurance

The process of ensuring that products and services meet certain quality standards or requirements before they are offered to customers.