4b if a consumer chooses 1020 12 at prices p 215 y 10 5 15...

4B. If a consumer chooses ~ = (10.20. 12) at prices p = (2.1.5), y = (10. 5. 15) at prices p' = (4.2. 3) and = = (5.2. 10) at prices p' = (5. 10.5) then, a she violates the weak axiom of revealed preference (WARP) she does not violate WARP and shows direct revealed preference of a to both y and s, and of y to = she does not violate WARP and reveals to prefer y to x she does not violate WARP and reveals to prefer y to s, and = to y none of the previous four statements is correct.

Transcript

00:01 So here we're talking about a consumer, right? the price of x is equal to one.

00:05 The price of y is equal to one.

00:07 And jane has income of $20.

00:09 So let's draw her budget constraint, right? her budget constraint between x and y goes from 20 to 20, right? because she can afford 20 of each.

00:21 So this would be the budget, right? and notice here that the slope is equal to minus one, right? because the trade -off, right, if we give up one x, we get one y and vice versa, right? so the slope here is minus one.

00:37 However, we're told that at the point 1010, which would be something like here, 10, 10, we know that the slope of her indifference curve is going to be minus 2.

00:49 And that means it is steeper, right? so her indifference curve is going through this point at, right, in a way that it is a steeper sloped line, right? it's got a slope of minus two, which is steeper than the budget constraint.

01:05 That means it's not tangent, right? so her indifference curve must look something like this, right? it's got to be steeper at 1010 where it's intersecting that budget line, right? so clearly what can we say? is it the best? no.

01:21 Right it can't be the best it's not tangent right she should move to somewhere like this right so for example 15 and 5 might be a better outcome for consistent with utility maximization right she gets to move to a higher indifference curve right so b more x less y that is absolutely right b is a statement about her preferences because we can see graphically, right, at 1010, she's not enjoying it, right? she would much prefer more x...

Question

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