Suppose John buys only two goods. His preferences satisfy all standard axioms. Price of good 1 is £2 per unit. Good 2 is priced as follows. There is free provision of the first 3 units. Then, there is a discount of 25% for each additional unit if a consumer buys no more than 6 units. After 6 units a consumer has to pay the full price of £8. The following is true: a)/ If John’s income is £37 and if he wants to consume at least 7 units of good 2 then he can’t afford more than 3 units of good 1. b)/ If John’s income is above £30, and if he consumes 5 units of good 2 at his optimal consumption point, then the MRS at this point must be -1/4. c)/ If John’s income is M, where M is greater than 36, then he can’t afford more than ?+12 8 units of good 2. d)/ If John’s budget is above £45 and if he buys 5 units of good 1, then he can afford at least 8 units of good 2. e)/ None of the above.
3. Suppose John buys only two goods. His preferences satisfy all standard axioms.
a)/ If John’s income is £37 and if he wants to consume at least 7 units of good 2 then he can’t afford more than 3 units of good 1.
b)/ If John’s income is above £30, and if he consumes 5 units of good 2 at his optimal consumption point, then the MRS at this point must be -1/4.
c)/ If John’s income is M, where M is greater than 36, then he can’t afford more than ?+12 8 units of good 2.
d)/ If John’s budget is above £45 and if he buys 5 units of good 1, then he can afford at least 8 units of good 2.
e)/ None of the above.
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