A consumer was at an optimum. She then discovers that the marginal utility per dollar spent on food is more than the marginal utility per dollar spent on movies. She knows then that
A) the price of movies must have decreased.
B) the price of food must have increased.
C) the price of movies must have increased or the price of food must have decreased.
D) the price of movies must have decreased or the price of food must have increased.
Answer: C
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Adverse selection is, in general, the asymmetric information problem that occurs
A) after a transaction is consummated. B) due to a size difference in the parties to a transaction. C) with securitization. D) before a transaction is consummated.
Although he is very poor, Al plays the million-dollar lottery every day because he is certain that one day he will win. Al makes this calculation based upon
A) the frequency of past outcomes. B) subjective probability. C) knowledge of all possible outcomes. D) tossing a coin.