Nadia Comaneci and Mr

question 11

Multiple Choice

Nadia Comaneci and Mr.X have preferences defined over pizza, p, and trampolines, t.They have identical utility functions, U(p, t) = p + 2,000t^1/2.Each pizza costs $1 and each trampoline costs $1,000.Nadia and Mr.X like to share, and indeed trampolines are a public good for them.Pizza, however, is a private good.We don't know their exact incomes, but we do know that each of them earns at least $10,000.

• A)The Pareto efficient number of trampolines for them is 4.
• B)The Pareto efficient number of trampolines for them is 1.
• C)The Pareto efficient number of trampolines for them cannot be determined without knowing how the costs will be shared.
• D)The Pareto efficient number of trampolines for them is 2.
• E)Since their preferences are homothetic, their income elasticity of demand for pizza is -1.

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Definitions:

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