Helen is a computer analyst earning $750,000 a year in New York and flies each winter weekend to Florida to bask in the sun. The price tag is $1,500 . Her cousin Fred is a nursery school teacher earning $35,000 a year in Chicago and spends his winter weekends going to avant-garde movie theaters. The price tag is $20 . Who gets the better deal?
a. Helen gets the better deal because the marginal
utility of the Florida weekend is higher than the weekend of movies, regardless of the price tags.
b. Helen gets the better deal because the ratio of marginal utility to price is higher than the ratio of marginal utility to price for a weekend of movies.
c. Fred gets the better deal because the ratio of marginal utility to price is higher than the ratio of marginal utility to price for a Florida weekend.
d. Using interpersonal comparisons of utility, it is clear that Fred gets the better deal because the difference in price overwhelms any difference in the marginal utility of aweekend of movies compared to a weekend in Florida.
e. It is impossible to say who gets the better deal because we can't engage in interpersonal comparisons of utility.
E
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Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that
A) beer and wine are substitutes and wine is a luxury good. B) beer and wine are substitutes and wine is an inferior good. C) beer and wine are complements and wine is a luxury good. D) beer and wine are complements and wine is an inferior good.
The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is
A) vertical. B) negatively sloped. C) positively sloped. D) horizontal.