Figure 3.4.2
-Refer to Figure 3.4.2 above. From an initial position at point A, the positions the consumer chooses as her budget line changes let us conclude that:
A) A is preferred to E and G.
B) B is preferred to A.
C) A is preferred to all market baskets in the top shaded area and all market baskets in the bottom shaded area are preferred to A.
D) A is preferred to all market baskets in the bottom shaded area and all market baskets in the top shaded area are preferred to A.

Question

Figure 3.4.2
-Refer to Figure 3.4.2 above. From an initial position at point A, the positions the consumer chooses as her budget line changes let us conclude that:
A) A is preferred to E and G. 
B) B is preferred to A. 
C) A is preferred to all market baskets in the top shaded area and all market baskets in the bottom shaded area are preferred to A. 
D) A is preferred to all market baskets in the bottom shaded area and all market baskets in the top shaded area are preferred to A.

Quizplus · Accepted Answer

As the budget line shifts inward, the consumer chooses market baskets that are on the higher indifference curve, indicating a preference for the goods in the top shaded area. As the budget line shifts outward, the consumer chooses market baskets that are on the lower indifference curve, indicating a preference for the goods in the bottom shaded area. Therefore, all market baskets in the top shaded area are preferred to A when the budget line shifts inward, and all market baskets in the bottom shaded area are preferred to A when the budget line shifts outward. Hence, option D is the correct choice.

Figure 3.4.2 -Refer to Figure 3.4.2 Above. from an Initial Position at Position