Every Consumer Has a Red-Money Income and a Blue-Money Income

question 23

Multiple Choice

Every consumer has a red-money income and a blue-money income and each commodity has a red price and a blue price.You can buy a good by paying for it either with blue money at the blue price or with red money at the red price.Harold has 27 units of red money and 40 units of blue money to spend.The red price of ambrosia is 3 and the blue price of ambrosia is 8.The red price of bubble gum is 1 and the blue price of bubble gum is 2.If ambrosia is on the horizontal axis, and bubble gum on the vertical axis, then Harold's budget set is bounded by

• A)two line segments one running from (0, 47)to (5, 27)and the other running from (5, 27)to (14, 0).
• B)two line segments, one running from (0, 47)to (9, 20)and another running from (9, 20)to (14, 0).
• C)a vertical line segment and a horizontal line segment, intersecting at (9, 20).
• D)two line segments, one running from (0, 25)to (9, 20)and the other running from (9, 20)to (36, 0).
• E)a vertical line segment and a horizontal line segment, intersecting at (5, 27).

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Definitions:

Equity Multiplier

A financial leverage ratio that measures the portion of a firm's assets that are financed by shareholders' equity.

Du Pont Identity Method

A technique for analyzing a company's financial performance by examining its efficiency, leverage, and profit margins.

Profit Margin

Profit Margin represents the percentage of revenue that remains after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's total revenue.

Total Asset Turnover

A financial ratio that measures the efficiency of a company's use of its assets to generate sales revenue.