On a Certain Island There Are Only Two Goods, Wheat

question 10

Multiple Choice

On a certain island there are only two goods, wheat and milk.The only scarce resource is land.There are 1,000 acres of land.An acre of land will produce either 8 units of milk or 15 units of wheat.Some citizens have lots of land; some have just a little bit.The citizens of the island all have utility functions of the form U(M, W) = MW.At every Pareto optimal allocation,

• A)every consumer's marginal rate of substitution between milk and wheat is -1.
• B)the number of units of milk produced equals the number of units of wheat produced.
• C)total milk production is 4,000 units.
• D)all citizens consume the same commodity bundle.
• E)None of the above is true at every Pareto optimal allocation.

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Definitions:

Trade-Offs

Decisions made that involve a sacrifice of one thing to obtain another, often used in discussions of economic and personal choices.

Opportunity Cost

This represents the value of the best alternative foregone when a decision to pursue a certain action is made.

Given Budget

A specified sum of money allocated for a particular purpose, often within a fixed time period.

Price

The amount of money or its equivalent paid or charged for a product or service, or the sum of values that consumers exchange for the benefits of having or using the product or service.