Asked by Mauricio Davila on Apr 27, 2024
Verified
Smedley,a careful utility maximizer,consumes peanut butter and ice cream.Assume that both peanut butter and ice cream are normal goods.Right after he achieves the utility-maximizing level of consumption of the two goods,the price of ice cream increases.To adjust to this event,he consumes _____ peanut butter and _____ ice cream.
A) more;more
B) less;less
C) more;less
D) less;more
Utility-Maximizing
A principle in economics where individuals or firms aim to achieve the highest level of satisfaction or utility from their actions under certain constraints.
Peanut Butter
A food paste or spread made from ground, dry-roasted peanuts, often containing additional ingredients that modify the taste or texture.
Ice Cream
A sweet, frozen dessert made from cream or milk and flavors, often churned and frozen to a soft consistency.
- Apply the framework of utility maximization to modify purchasing decisions when faced with fluctuating prices.
- Discern the repercussions of alterations in prices on the utilization of commodities and grasp the implications of substitutive choices.
Verified Answer
ME
marcella evansApr 30, 2024
Final Answer :
C
Explanation :
When the price of ice cream increases, Smedley will consume less ice cream because it has become more expensive, reducing the quantity demanded (a movement along the demand curve). To maintain his utility, he will consume more peanut butter, a substitute good, to compensate for the reduced consumption of ice cream. This is consistent with the substitution effect of price changes in consumer theory.
Learning Objectives
- Apply the framework of utility maximization to modify purchasing decisions when faced with fluctuating prices.
- Discern the repercussions of alterations in prices on the utilization of commodities and grasp the implications of substitutive choices.