Nadia Comaneci and Mr

Nadia Comaneci and Mr. X have preferences defined over pizza, p, and trampolines, t. They have identical utility functions, U(p, t) = . Each pizza costs $1 and each trampoline costs $1,000. Nadia and Mr. X like to share, and indeed trampolines are a public good for them. Pizza, however, is a private good. We don't know their exact incomes, but we do know that each of them earns at least $10,000.

A) The Pareto efficient number of trampolines for them is 4.
B) The Pareto efficient number of trampolines for them is 1.
C) The Pareto efficient number of trampolines for them cannot be determined without knowing how the costs will be shared.
D) The Pareto efficient number of trampolines for them is 2.
E) Since their preferences are homothetic, their income elasticity of demand for pizza is -1.

Correct Answer:

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