Quasimodo from your workbook has the utility function U(x, m)= 100x - x²/2 + m, where x is his consumption of earplugs and m is money left over to spend on other stuff.If he has $10,000 to spend on earplugs and other stuff and if the price of earplugs rises from $50 to $70, then his net consumer's surplus A)falls by 800. B)falls by 2,800. C)falls by 600. D)increases by 400. E)increase by 1,600.

Question

Quizplus · Accepted Answer

The correct answer is A.The net consumer's surplus falls by 800 because the price of earplugs rises from $50 to $70, which means that Quasimodo can buy fewer earplugs for the same amount of money. This reduces his utility, and the net consumer's surplus is the difference between his utility with the new price and his utility with the old price.

Quasimodo from Your Workbook Has the Utility Function U(x, M)=