Suppose Shawn dines at a restaurant that serves clams at a fixed price and crab legs at a varied,market-determined price.The marginal utility of an order of crab legs is 100 units,and the marginal utility of an order of clams is 50 units.Shawn orders crab legs in one week,but he orders clams in the next week.This means that in the second week _____
A)the price of crab legs has increased three times more than that of clams.
B)the price of clams has dropped three times less than that of clams.
C)the price of clams has dropped four times less than that of clams.
D)the price of clams has increased four times more than that of clams.
E)the price of crab legs has increased more than twice that of clams.

Question

Quizplus · Accepted Answer

Given the information, Shawn's switch from crab legs to clams suggests a change in the relative prices or utilities that makes clams more attractive. Since the utility of crab legs is twice that of clams (100 units vs. 50 units), for Shawn to switch, the price of crab legs must have increased significantly relative to the price of clams, specifically more than twice, to offset the utility difference. This is consistent with choice E.

Suppose Shawn Dines at a Restaurant That Serves Clams at a Fixed