Felix chooses between clothing, 9₁, and food, 9₂. His initial income is $4,000 a month, p₁ = 400, and p2 = 40. At his initial bundle, he consumes q₁ = 2 and q₂ = 80. Later, his income rises to $4,800 and the price of clothing rises to p₁ = $600, but the price of food does not change (p₂ = 40). As a result, he reduces his consumption of clothing to q₁ =1. Using a revealed preference reasoning (that is, knowing nothing about his indifference curves), can you determine how he ranks the two bundles? O A. Felix may prefer his initial bundle or he may be indifferent between them. O B. Felix is indifferent between his initial bundle and his new bundle. O C. Felix prefers his new bundle. O D. Felix prefers his initial bundle. O E. Insufficient information exists to determine which bundle Felix prefers.

Felix chooses between clothing, 9₁, and food, 9₂. His initial income is $4,000 a month, p₁ = 400, and p2 = 40. At his initial bundle, he consumes q₁ = 2 and q₂ = 80. Later, his income rises to $4,800 and the price of clothing rises to p₁ = $600, but the price of food does not change (p₂ = 40). As a result, he reduces his consumption of clothing to q₁ =1. Using a revealed preference reasoning (that is, knowing nothing about his indifference curves), can you determine how he ranks the two bundles? O A. Felix may prefer his initial bundle or he may be indifferent between them. O B. Felix is indifferent between his initial bundle and his new bundle. O C. Felix prefers his new bundle. O D. Felix prefers his initial bundle. O E. Insufficient information exists to determine which bundle Felix prefers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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