-Refer to Figures d and e.Bundle A is preferred to bundle B in Figure e and not figure d because
A) The MRS between water in a rainy season and during a drought is higher in e than in d
B) As the probability of a drought increases, consumers are no longer indifferent between the two bundles
C) As the probability of a drought decreases, water in a rainy season becomes less valuable
D) Consumers are indifferent between bundles A and B as the probability of a drought increases

Question

-Refer to Figures d and e.Bundle A is preferred to bundle B in Figure e and not figure d because
A) The MRS between water in a rainy season and during a drought is higher in e than in d 
B) As the probability of a drought increases, consumers are no longer indifferent between the two bundles 
C) As the probability of a drought decreases, water in a rainy season becomes less valuable 
D) Consumers are indifferent between bundles A and B as the probability of a drought increases

Quizplus · Accepted Answer

In Figure e, the preference for Bundle A over Bundle B as the probability of a drought increases suggests that consumers value the composition of Bundle A more under those conditions, indicating a change in their indifference between the two bundles based on the changing probability of a drought. This reflects a shift in preferences due to the increased value or necessity of the goods in Bundle A under drought conditions, which is not depicted or implied in Figure d.

-Refer to Figures D and E