Pedro buys market basket A that includes 10 books at a price of $20 per book and 10 DVDs at a price of $10 per DVD. Market basket B contains 12 books and 12 DVDs. Based on this information, which of the following statements is NOT true?
A) Revealed preference analysis implies that Pedro only prefers basket B to basket A if basket A is more expensive.
B) Pedro prefers market basket B to basket A.
C) Market basket B will cost more than basket A.
D) If the prices change and Pedro chooses market basket C, which now costs the same as basket B, then basket C is prefer to basket A.

Question

Quizplus · Accepted Answer

Revealed preference analysis implies that Pedro prefers basket B to basket A regardless of the price. Therefore, option A is not true. Option B is true as Pedro prefers basket B. Option C is not necessarily true as we do not know the price of basket B. Option D is also true as long as Pedro still prefers basket C over basket A, even if they cost the same as basket B.

Pedro Buys Market Basket a That Includes 10 Books at a Price