A Parent Has Two Children Living in Cities with Different

question 15

Multiple Choice

A parent has two children living in cities with different costs of living.The cost of living in city B is 2 times the cost of living in city A.The child in city A has an income of $5,000 and the child in city B has an income of $10,000.The parent wants to give a total of $4,000 to her two children.Her utility function is U(C_A, C_B) = C_AC_B, where C_A and C_B are the consumptions of the children living in cities A and B respectively.She will choose to give

• A)each child $2,000, even though this will buy less goods for the child in city B
• B)the child in city B twice as much money as the child in city A.
• C)the child in city A twice as much money as the child in city B.
• D)the child in city B the same amount of money as the child in city A.
• E)the child in city A the same amount of money as the child in city B.

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Definitions:

Liabilities

Financial obligations or debts that an entity owes to others, which must be settled over time through the transfer of economic benefits.

Expenses Paid

Refers to the amounts of money disbursed to cover operating costs or charges incurred in the conduct of a business.

Expense Recognition Principle

An accounting principle that expenses should be recognized in the period in which they are incurred, matching them with the revenues they help to generate.

Time Period Assumption

An accounting principle that allows an organization to divide its economic activities into specific time periods such as months, quarters, or years for reporting purposes.