Bob's Marginal Utility for Consuming Beer and Pizza with $8

question 132

Multiple Choice

Bob's Marginal Utility for consuming beer and pizza with $8.00 in income

-In the above table, how much beer and pizza will Bob consume if the price of a piece of pizza is $2.00 and the price of a beer is $2.00?

• A) 1 piece of pizza and 3 beers
• B) 2 pieces of pizza and 2 beers
• C) 2 pieces of pizza and 3 beers
• D) 3 pieces of pizza and 1 beer

---

Definitions:

Liquidity Premium (LP)

Liquidity Premium refers to the extra return investors demand to compensate for investing in securities with low liquidity or those difficult to sell quickly at market value.

Real Risk-free Rate

The rate of return on a risk-free investment, after adjusting for inflation. It represents the true purchasing power gained from investing.

Real Risk-free Rate

The rate of return on an absolutely risk-free investment, adjusted for inflation, representing the minimum return investors would expect for any investment risk.

Inflation Premium (IP)

The additional amount that investors require on the return of an investment to compensate for the loss of purchasing power due to inflation.