Essay
Eliza consumes 12 cappuccinos and 8 apple turnovers per week. The price of cappuccino is $4 each and apple turnovers are $1 each.
a. What is the amount of income allocated to cappuccino and apple turnover consumption?
b. What is the price ratio (the price of cappuccino relative to the price of apple turnovers)?
c. Explain the meaning of the price ratio you computed.
d. If Eliza maximize utility, what is the ratio of the marginal utility of cappuccino to the marginal utility of apple turnovers?
e. If the price of apple turnovers falls, will Eliza consume more apple turnovers, fewer apple turnovers or the same amount of apple turnovers? Explain your answer using the rule of equal marginal utility per dollar.
Correct Answer:
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a. Income = $56
b. Price of cappuccino /...View Answer
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Correct Answer:
Verified
b. Price of cappuccino /...
View Answer
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Get Access to more Verified Answers free of charge
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