Exam 6: Revealed Preference-Part A

The Laspeyres price index differs from the Paasche price index because the Laspeyres index holds prices constant and varies quantities while the Paasche price index holds quantities constant and varies prices.

Twenty years ago, Amanda consumed cans of motor oil which cost her 6 pesos each and gallons of gasoline which cost her 14 pesos each.With her income of 112 pesos, she bought 7 cans of motor oil and 5 gallons of gasoline.Today she has an income of 230 pesos.Cans of motor oil now cost 10 pesos each and gallons of gasoline now cost 32 pesos each.Assuming her preferences haven't changed, she

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 $50, Hillary sees the doctor 7 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $360.

Patience was maximizing her utility subject to her budget constraint.Prices changed and Patience was less well off than before.Therefore, at the old prices her new bundle must cost less than her old bundle.

It is possible for a consumer to satisfy the weak axiom of revealed preference but violate the strong axiom of revealed preference.

A student spends all of her income on pizza and books.When pizzas cost $3 each and books cost $10 each, she consumed 30 pizzas and 3 books per month.The price of pizzas fell to $2.90 each while the price of books rose to $11 each.The price change

Prudence was maximizing her utility subject to her budget constraint.Then prices changed.After the change, she is better off.Therefore the new bundle costs more at the old prices than the old bundle did.

If the government gave you a subsidy of $100 per month that you had to spend on housing and if you could spend the remainder of your income in any way you wished, the effect of the subsidy would differ from the effect of a $100 per month unrestricted increase in your income only if

Rudolf Rational obeys the weak axiom of revealed preferences.His preferences don't change over time.One year he could afford bundle x but bought bundle y.If another year he buys bundle x, then he can't afford bundle y.

For a consumer who has an allowance to spend and no endowment of goods, a decrease in the price of an inferior good consumed makes him better off.

A consumer's behavior was observed in three situations with different prices and incomes.In situation 1, she chose a bundle that cost $1,600.In situation 2, she chose a bundle that cost $2,500.In situation 3, she chose a bundle that cost $3,100.The bundle purchased in situation 2 would cost $1,200 at situation 1 prices.The bundle purchased in situation 3 cost $2,000 at situation 2 prices.This consumer's behavior is known to satisfy the strong axiom of revealed preference.Therefore, the bundle purchased in situation

Remember that the Laspeyres price index uses the old quantities for the weights.In 1991, good x cost $5 and good y cost $1.The current price of good x is $7 and the current price of good y is $6.In 1991 the consumption bundle was (x, y)= (2, 4).The current consumption bundle is (x, y)= (5, 3).The Laspeyres index of current prices relative to 1991 prices is closest to which of the following numbers?

Franco and Gianni have the same tastes and consume only two goods, wine and pizza.Franco lives in Milano and spends 100,000 lire per week.It costs him 5,000 lire for a bottle of wine and 5,000 lire for a pizza.Gianni lives in Napoli.It costs him 4,000 lire for a bottle of wine and 6,000 lire for a pizza.At those prices, he chooses to buy 10 bottles of wine and 6 pizzas per week.

Pierre's friend Henri lives in a town where he has to pay 3 francs per glass of wine and 5 francs per loaf of bread.Henri consumes 5 glasses of wine and 4 loaves of bread per day.Bob has an income of $15 per day and pays $.50 per loaf of bread and $2 per glass of wine.If Bob has the same tastes as Henri and if the only thing that either of them cares about is consumption of bread and wine,

Pierre's friend Henri lives in a town where he has to pay 3 francs per glass of wine and 6 francs per loaf of bread.Henri consumes 9 glasses of wine and 4 loaves of bread per day.Bob has an income of $15 per day and pays $.50 per loaf of bread and $2 per glass of wine.If Bob has the same tastes as Henri and if the only thing that either of them cares about is consumption of bread and wine,

Maria consumes strawberries which cost her 10 pesos a box and bananas which cost her 9 pesos a bunch.With her income of 192 pesos she buys 12 boxes of strawberries and 8 bananas.Daphne, with an income of 170 shillings, consumes strawberries at a cost of 6 shillings each and bananas at a cost of 12 shillings each.Assuming their preferences are identical,

The Laspeyres price index differs from the Paasche price index because the Paasche index holds prices constant and varies quantities, while the Laspeyres index holds quantities constant and varies prices.

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 $40, Hillary sees the doctor 4 times.After health care reform, a visit to the doctor will cost $10 but her taxes will rise by $160. a.Explain what conditions are necessary for Hillary to be made better off by health care reform. b.Is it possible to tell whether Hillary has been made better off with the given information? c.Explain what conditions are necessary for Hillary to be made worse off by health care reform. d.Is it possible to tell whether Hillary has been made worse off with the given information?

The Laspeyres index of prices in period 2 relative to period 1 tells us the ratio of the cost of buying the period 1 bundle at period 2 prices to the cost of buying the period 1 bundle at period 1 prices.

Stan Ford currently spends $100 a week on entertainment.A rich uncle offers him a choice between a $50 a week allowance and the opportunity to buy all of his entertainment at half price.Stan has no kinks in his difference curves.Stan would