Question

Suppose we know that for a consumer bundle A is at least as good as bundle B. Then, we can conclude that if the consumer has to choose between bundle A and bundle B, she will necessarily choose bundle A.

a. True b. False

2.

a. b.

3.

4.

Suppose you observe me choosing bundle A=(4,3) over bundle B=(4,5). This

suggests that my tastes do not satisfy the assumption of monotonicity.

True

False

Suppose you observe me choosing bundle A over bundle B on a given occasion, then

you observe me choosing bundle B over bundle C on a second occasion, and you

observe me choosing bundle C over bundle A on a third occasion. Based on this

information, you can conclude that my preferences are not rational.

1. True

2. False

Consider the following bundles: A=(4,8), B=(8,4), and C=(6,6). Suppose you know

that my tastes satisfy the convexity assumption. Then you can conclude that for

me bundle C is better than bundles A and B

1. True

2. False

.

Answer 1

1. If A is at least as good as B, then the statement is True. The reason is that bundle A is at least as good as B implying A>=B. A rational consumer will necessarily choose A only as more is better.

2.Monotonicity implies that for a bundle A(a1,a2) and bundle B(b1,b2); a1>b1 & a2>b2, then A>B i.e A will be preffered to B. In the given question a1=b1 while a2<b2. Hence Bundle B should be weakly preffered over Bundle A. Hence the statement is True as A is choosen over B and so it does not satisfy the assumption of monotonicity.

3.Given A over B, B over C, and C over A. This implies from the axiom of transitivity and the consumer is actually rational. Hence the statement is false.

4.In simple terms convexity means one prefers to follow a average pattern than to be at extremes. In all the 3 bundles, total number of goods are same. However bundle C has a better average distribution of both goods while A and B have extreme distribution of the second and first good. Hence for a convex preference consumer, C is better than A and B. thus statement is true.