Larry consumes only beer (B)and chips (C). His real income in terms of beer is

Question

Quizplus · Accepted Answer

Real income in terms of beer can be calculated as the ratio of Larry's total expenditure on beer to the price of beer.
Therefore, real income in terms of beer = total expenditure on beer / price of beer
Larry's total expenditure on beer and chips can be represented as Y = PC*B + PC*C
Since Larry only consumes beer and chips, we can represent his total expenditure on chips in terms of beer as C = (Y - PC*B) / PC
Substituting this in the above equation for real income, we get:
Real income in terms of beer = (PC*B + PC*((Y - PC*B) / PC)) / PB
= (Y / PB) - B
Therefore, the correct answer is D) Y/PB, which represents the ratio of Larry's total expenditure to the price of beer.

Larry Consumes Only Beer (B)and Chips (C)