George Goodhands is a life insurance agent.He can work 40 hours a week for a large national insurance company and receive a fixed salary of S dollars per week, or he can work independently, for as many or as few hours per week as he likes and earn w dollars per hour.(He cannot take both jobs.)Which of the following responses to an increase in the salary paid by the insurance company would be inconsistent with the weak axiom of revealed preference?

Question

Quizplus · Accepted Answer

The weak axiom of revealed preference states that if an individual chooses option A over option B when both are available, and then option B is no longer available, then the individual will not choose a new option that is worse than A. In this scenario, if George chooses to work independently, it means he values his hourly wage more than the fixed weekly salary. Therefore, an increase in the salary paid by the insurance company should not make him switch to the salaried job. Option A violates the weak axiom. Option D is consistent because he is still choosing to work independently and valuing his hourly wage, but just deciding to work more hours. Option B and E are also consistent with the weak axiom because he is making the same choice regardless of the increase in the salaried job. Since there is only one inconsistent option with the weak axiom, the answer is C.

George Goodhands Is a Life Insurance Agent