Exam 7:Revealed Preference-Part A

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. )

When prices are ($4,$2),Tomoko chooses the bundle (9,18),and when prices are ($1,$2),she chooses the bundle (8,14).

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,

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.

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 $4,and Ronald's current consumptions of good 1 and good 2 are 25 and 5 respectively,what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer. )

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.

When the prices were ($5,$1),Vanessa chose the bundle (x,y)= (6,3).Now at the new prices, (p_x,p_y),she chooses the bundle (x,y)= (5,7).For Vanessa's behavior to be consistent with the weak axiom of revealed preference,it must be that

If all prices increase by 20%,

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

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.

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).

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

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).

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.

Tonal is a traveling substitute orchestra conductor.Each year,he starts in Ann Arbor,moves to Brownsville,then to Carson City,and so on until he reaches Zilvania,Ohio,after which he returns to Ann Arbor.He gets a salary according to the following simple rule.In Brownsville he is paid what his Ann Arbor consumption bundle would cost in Brownsville.In Carson City he is paid what his Brownsville bundle would cost in Carson City,and so on.After 26 two-week stints,he returns to Ann Arbor,where he is paid the cost in Ann Arbor of his Zilvania bundle.At each stop,he spends his entire salary on apples (A)and paperback books (B),so as to maximize the utility U= AB.Over the course of the year,his utility will

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,

It follows from the weak axiom of revealed preference that if a consumer chooses x when he could afford y and chooses y when he could afford x,then his income must have changed between the two observations.

The strong axiom of revealed preference requires that if a consumer chooses x when he can afford y and chooses y when he can afford z,then he will not choose z when he can afford x.

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.

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