Stan Ford currently spends $100 a week on entertainment.A rich uncle offers him a choice between a $50 a week allowance and the opportunity to buy all of his entertainment at half price.Stan has no kinks in his difference curves.Stan would
A)prefer the $50 allowance.
B)prefer the half-price subsidy.
C)be indifferent between the allowance and the subsidy.
D)prefer the subsidy if entertainment is a normal good and be indifferent otherwise.
E)prefer the allowance if entertainment is an inferior good and prefer the subsidy otherwise.

Question

Quizplus · Accepted Answer

With a half-price subsidy, Stan could continue to spend $100 a week on entertainment but only pay $50 for it, thus having an extra $50 to save or spend on other things. This would increase his overall utility, making him better off than if he took the $50 allowance and had to continue spending $100 on entertainment each week. Therefore, he would prefer the half-price subsidy.

Stan Ford Currently Spends $100 a Week on Entertainment