11) What is Keegan\'s optimal consumption bundle given that he has $30 to spend

Question

11) What is Keegan's optimal consumption bundle given that he has $30 to spend and the price of a Pita

Wrap is $6 and the price of a glass of Bubble Tea is $3?

A) 3 pita wraps and 3 bubble teas C) 4 pita wraps and 2 bubble teas

B) 3 pita wraps and 4 bubble teas D) 5 pita wraps and 0 bubble teas

12) What is Keegan's optimal consumption bundle when the price of the Bubble Tea increases to $6, and

everything else remains the same, i.e., Keegan?s income is $30, and the price of one Pita Wrap is $6?

A) 1 pita wrap and 4 bubble teas C) 2 pita wraps and 3 bubble teas

B) 3 pita wraps and 2 bubble teas D) 4 pita wraps and 1 bubble tea

13) Which statement is true if the price of the Bubble Tea increases to $6, and everything else remains the

same, i.e., Keegan?s income is $30, and the price of one Pita Wrap is $6?

A) The bundle that Keegan was consuming initially is still a utility maximizing bundle, but it is not

affordable.

B) Keegan must consume less bubble tea compared to his initial consumption because the marginal utility

per dollar ratio increases when the price of bubble tea increases.

C) Keegan must consume less bubble tea compared to his initial consumption because his quantity

demanded for bubble tea decreases by both the substitution and income effect.

D) Because his purchasing power goes down as a result of the price increase, the reason for the quantity

demanded to decrease is only the income effect.

14) What is Keegan's optimal consumption bundle given that Keegan?s income increases to $39 while the

price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3?

A) 5 pita wraps and 3 bubble teas C) 4 pita wraps and 5 bubble teas

B) 4 pita wraps and 4 bubble teas D) 3 pita wraps and 7 bubble teas

15) Holding prices constant, when Keegan?s income changed from $30 to $39 when prices remain

constant and $6 per pita wrap and $3 per bubble tea, his utility maximizing bundle changed. Based on

your answers to his optimal choices at the two income levels, what type of goods are pita wraps and

bubble teas?

A) Pita wrap is an inferior good and bubble tea is a normal good.

B) Bubble tea is a normal good and pita wrap is an inferior good.

C) Both pita wrap and bubble tea are normal goods.

D) Both pita wrap and bubble tea are inferior goods

Explanation / Answer

10) (c) 11) B) 3 pita wraps and 4 bubble teas 12) C) 2 pita wraps and 3 bubble tea 13) A)The bundle that Keegan was consuming initially is still a utility maximizing bundle, but it is not affordable. 14) C) 4 pita wraps and 5 bubble teas 15) C) Both pita wrap and bubble tea are normal goods.

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