Hillary Has an Initial Endowment of $500 and Is Interested

question 18

Multiple Choice

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $60, Hillary sees the doctor 3 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $170.

• A)Hillary will be made better off by health care reform.
• B)Hillary violates the Weak Axiom of Revealed Preference.
• C)We cannot tell how health care reform will affect Hillary.
• D)Hillary will be made worse off by health care reform.
• E)Hillary violates the Strong Axiom of Revealed Preference.

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Definitions:

Carrying Cost

This is the total cost of holding inventory, including storage, handling, insurance, and opportunity costs.

Fixed Cost

Expenses that do not change with the level of goods or services produced by a business, such as rent, salaries, and insurance.

Variable Cost

Costs that change in proportion to the good or service that a business produces.

Inventory

The total amount of goods and materials held by a company for the purpose of resale or production.