Exam 6: Revealed Preference-Part A

On the planet Hyperion, every consumer who has ever lived has a utility function U(x, y)= min{x, 2y}.The currency of Hyperion is the doggerel.In 1850 the price of x was 1 doggerel per unit and the price of y was 2 doggerels per unit.In 2000 the price of x was 11 doggerels per unit and the price of y was 4 doggerels per unit.The Paasche price index of prices in 2000 relative to prices in 1850 is

In 1991, good x cost $5 and good y cost $1.They now cost $9 and $5 respectively.In 1991 the consumption bundle of x and y was 4 x's and 5 y's.It is now 9 x's and 7 y's.Calculate the Laspeyres index of current prices relative to 1991 prices rounded to one decimal place.(Remember the Laspeyres index uses the old quantities for weights.)

Desmond has lived in Australia, Belgium, and Canada.His tastes never changed but his income and prices did.In Australia his commodity bundle was (x₁, x₂)= (7, 8), in Belgium it was (9, 4), and in Canada it was (7, 5).Prices in Canada were (p₁, p₂)= (3, 3), and prices in Australia were (p₁, p₂)= (3, 3), and prices in Australia were (p₁, p₂)= (16, 4).

Recall that the Laspeyres price index (P.I.)uses the old bundle as weights and the Paasche price index uses the new bundle as weights.If the prices of all goods double and your income triples,

At prices (p1, p2)= ($4, $1), George buys the bundle (x₁, x₂)= (10, 20).At prices (p'₁, p'₂)= ($1, $4), he buys the bundle (x'₁, x'₂)= (4, 14).At prices (p''₁, p''₂), he buys the bundle (x''₁, x''₂)= (20, 10).If his preferences satisfy the strong axiom of revealed preferences, then it must be that

Consider the case of Ronald.Let the prices and consumptions in the base year be as in situation D, where p₁ = 3, p₂ = 1, x₁ = 5, and x₂ = 15.If in the current year, the price of good 1 is $1 and the price of good 2 is $2, and Ronald's current consumptions of good 1 and good 2 are 25 and 25 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.)

If a consumer maximizes a utility function subject to a budget constraint and has strictly convex preferences, then his behavior will necessarily satisfy the weak axiom of revealed preference and the strong axiom of revealed preference.

Prudence is careful to plan ahead.She is going to Paris next year to study.To protect herself from exchange rate fluctuations, she bought a futures contract for the number of francs she plans to spend next year, given current prices.When she arrives in Paris, she can cash in her contract for this many francs no matter what the exchange rate is.If the value of the franc relative to the dollar should happen to fall before she gets to Paris, she

An increase in the price of an inferior good makes the people who consume that good better off.

If Goldie chooses the bundle (6, 6)when prices are ($6, $2)and the bundle (10, 0)when prices are ($5, $5), Aif (P2 > 4)]

At prices ($4, $12), Harry chooses the bundle (9, 4).At the prices ($8, $4), Harry chooses the bundle (2, 9).Is this behavior consistent with the weak axiom of revealed preference?

Jose consumes rare books which cost him 8 pesos each and pieces of antique furniture which cost him 10 pesos each.He spends his entire income to buy 9 rare books and 11 pieces of antique furniture.Nigel has the same preferences as Jose, but faces different prices and has a different income.Nigel has an income of 162 pounds.He buys rare books at a cost of 4 pounds each and pieces of antique furniture at a cost of 11 pounds each.

Twenty years ago, Dmitri consumed bread which cost him 10 kopeks a loaf and potatoes which cost him 18 kopeks a sack.With his income of 230 kopeks, he bought 5 loaves of bread and 10 sacks of potatoes.Today he has an income of 400 kopeks.Bread now costs him 20 kopeks a loaf and potatoes cost him 25 kopeks a sack.Assuming his preferences haven't changed (and the sizes of loaves and sacks haven't changed), when was he better off?

The strong axiom of revealed preference says that if a consumer bought x when he could have afforded y and bought y when he could have afforded z, then he will buy x whenever he can afford z.

Howard Send is deciding whether to keep his car when he moves to New York City.To operate his car for a year, he would have to pay a flat fee of $6,000 for auto insurance and parking, plus $.20 for every mile that he drives for gasoline and repairs.Alternatively, he could give his car to his brother-in-law in Buffalo (the market value of the car is negligible)and take taxicabs in New York, which cost $1 a mile.Howard knows that if he took the car to New York he would drive 6,500 miles per year.If he places no value, positive or negative, on his brother-in-law's getting the car and if he is indifferent between riding a cab and driving, he should

Let A stand for the bundle (7, 9), B stand for the bundle (10, 5), and C stand for the bundle (6, 6).When prices are (2, 4), Betty chooses C.When prices are (12, 3)she chooses A

Carlos has at one time or another lived in Argentina, Bolivia, and Colombia.He buys only two goods, x and y.In Argentina the prices were ($9, $3)and he consumed the bundle (6, 7).In Bolivia he consumed (9, 2).In Colombia he consumed the bundle (6, 5)at the prices ($3, $3).

Hillary has an initial endowment of $500 and is interested in two things: how many visits she can make to the doctor and how much money will be left over to spend on other things.When a trip to the doctor costs $60, Hillary sees the doctor 3 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $170.

On the planet Homogenia, every consumer who has ever lived consumes only two goods, x and y, and has the utility function U(x, y)= xy.The currency in Homogenia is the fragel.In this country in 1900, the price of good 1 was 1 fragel and the price of good 2 was 2 fragels.Per capita income was 72 fragels.In 2000, the price of good 1 was 5 fragels and the price of good 2 was 2 fragels.The Laspeyres price index for the price level in 2000 relative to the price level in 1900 is

When prices are ($2, $10), Emil chooses the bundle (1, 6), and when prices are ($12, $4), he chooses the bundle (7, 2).