Joseph Chooses a Combination of Apples and Oranges Along His

question 139

Multiple Choice

Joseph chooses a combination of apples and oranges along his budget line. The marginal rate of substitution of apples for oranges is 2, the price of an apple is $0.50, and the price of an orange is $0.25. Joseph:

• A) is maximizing total utility.
• B) should consume more apples and fewer oranges to maximize total utility.
• C) should consume fewer apples and more oranges to maximize total utility.
• D) may or may not be maximizing total utility.

---

Definitions:

Inflation Rate

The Inflation Rate is a measure of the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, usually expressed as a percentage.

Shoeleather Costs

The increased costs of transactions caused by inflation, including the time and effort spent to avoid holding cash that is rapidly losing value.

Menu Costs

The expenses companies incur while changing their prices, including costs related to reprinting menus, updating marketing materials, and altering price tags.

Saving Distortions

Alterations in the savings behavior of individuals or institutions due to external influences, such as tax policies or inflation.