Michael spends $10 a month on Pez dispensers and Superman action figures. His marginal-utility-to-price ratio for the Pez dispensers is 40, while his marginal-utility-to-price ratio for Superman action figures is 47. Explain why Michael is not maximizing his utility and how can he change his behavior to increase his utility?
What will be an ideal response?
To maximize utility, one must consume the combination of goods where the marginal-utility-to-price ratios of the goods are equal. Since 40 is less than 47, Michael is not maximizing his utility. He should buy more Superman figures and fewer Pez dispensers. This would lower the marginal-utility-to-price ratio of Superman figures and raise the marginal-utility-to-price ratio of Pez dispensers.
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The main argument in favor of Fed independence is that
A) interest rates would probably be lower if Congress controlled the Fed; thus hurting savers. B) the Constitution requires it. C) monetary policy is too important and too technical to be determined in the political arena. D) congressional control of the Fed was tried during the 1960s and did not work well.
Refer to the information provided in Figure 3.3 below to answer the question(s) that follow.
Figure 3.3Refer to Figure 3.3. As your income increased, the demand for X shifted from D1 to D2. Good X is
A. a normal good. B. an inferior good. C. an income-neutral good. D. a luxury good.
Refer to the diagrams. A decline in aggregate expenditures from AE 2 to AE 1 resulting from the real-balances, interest-rate, and foreign purchases effects would be depicted as:
A. a movement from A to C along aggregate demand curve AD 1 .
B. a movement from C to A along aggregate demand curve AD 1 .
C. a shift of aggregate demand from AD 1 to AD 2 .
D. a shift of aggregate demand from AD 2 to AD 1 .
When a good ends up undersupplied, we can assume it is a:
A. private good. B. public good. C. common resource. D. transitory good.