The assumption that preferences are transitive requires the consumer
A) to rank any two baskets.
B) to say that basket C is preferred to basket
A if basket B is preferred to basket A and basket C is preferred to basket B.
C) to rank a basket with more units of all goods higher than a basket with fewer units of all goods.
D) to have a diminishing marginal rate of substitution.

Question

Quizplus · Accepted Answer

Transitivity requires that if A is preferred to B and B is preferred to C, then A must be preferred to C. This can be represented as A>B and B>C, implying A>C. If the consumer cannot rank any two baskets or does not follow this logic, then preferences cannot be considered transitive. Therefore, choice B is the best answer because it requires the consumer to rank baskets in a specific way that follows the logic of transitivity.

The Assumption That Preferences Are Transitive Requires the Consumer