A consumer is observed choosing the bundle (3, 1) at prices (1,2) and the bundle (2, 2) at prices (2,1). Her wealth is unknown and may be different for the two choices. (a) Assuming the consumer spends all of her wealth, are her choices consistent with the Weak Axiom of Revealed Preference (or is it impossible to determine)? Solution: At prices (1,2), the first bundle costs 5 and the second costs 6. At prices (2,1), the first bundle costs 7 and the second costs 6. Therefore, neither is revealed preferred to the other, which implies that the choices are consistent with WARP. (b) If the consumer may not be spending all of her wealth, are her choices consistent with the Weak Axiom of Revealed Preference (or is it impossible to determine)?
A consumer is observed choosing the bundle (3, 1) at prices (1,2) and the bundle (2, 2) at prices (2,1). Her wealth is unknown and may be different for the two choices. (a) Assuming the consumer spends all of her wealth, are her choices consistent with the Weak Axiom of Revealed Preference (or is it impossible to determine)? Solution: At prices (1,2), the first bundle costs 5 and the second costs 6. At prices (2,1), the first bundle costs 7 and the second costs 6. Therefore, neither is revealed preferred to the other, which implies that the choices are consistent with WARP. (b) If the consumer may not be spending all of her wealth, are her choices consistent with the Weak Axiom of Revealed Preference (or is it impossible to determine)?
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.9P
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please only do: if you can teach explain each partc:
what does it mean? can you show graphs: show WARP : If the consumer’s wealth is high enough that both bundles can buy with both prices then WARP violates
If the consumer may not be spending all of her wealth, are her choices consistent with
the Weak Axiom of Revealed Preference (or is it impossible to determine)?
: If the consumer’s wealth is high enough that both bundles are aordable at
both prices then WARP violates.
why?
Therefore, it is notpossible to know
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