If U, V: R2 → R are such that U is a strictly increasing transformation of V then U and V must represent the same preferences. (d) If the substitution effect is negative (in response to a price increase) then we know the Walrasian demand for the good in question (in response to the same price increase) will also be negative. (e) A consumer’s utility is continuous and strictly monotone and when prices are given by p and income is I her Walrasian demand yields a utility of 7. Then, any bundle that yields a utility of at least 8 must cost more than I
Please answer all (a) to (e), whether they are True or False:
(a) If a consumer spends her entire income, then she has a strictly monotone utility function.
(b) The condition that ‘the marginal rates of substitution equal the ratio of prices’ is necessary but not sufficient for a given bundle to be a Walrasian
(c) If U, V: R2 → R are such that U is a strictly increasing transformation of V then U and V must represent the same preferences.
(d) If the substitution effect is negative (in response to a price increase) then we know the Walrasian demand for the good in question (in response to the same price increase) will also be negative.
(e) A consumer’s utility is continuous and strictly monotone and when prices are given by p and income is I her Walrasian demand yields a utility of 7. Then, any bundle that yields a utility of at least 8 must cost more than I
Step by step
Solved in 4 steps
