A consumer's behavior was observed in three situations with different prices and incomes.In situation 1, she chose a bundle that cost $1,600.In situation 2, she chose a bundle that cost $2,500.In situation 3, she chose a bundle that cost $3,100.The bundle purchased in situation 2 would cost $1,200 at situation 1 prices.The bundle purchased in situation 3 cost $2,000 at situation 2 prices.This consumer's behavior is known to satisfy the strong axiom of revealed preference.Therefore, the bundle purchased in situation
A)1 must cost less than $3,100 at situation 3 prices.
B)3 must cost at least $3,100 at situation 1 prices.
C)1 can not cost less than $3,100 at situation 3 prices.
D)2 must cost at least $3,100 at situation 1 prices.
E)None of the above.

Question

Quizplus · Accepted Answer

The strong axiom of revealed preference states that if a consumer chooses bundle A over bundle B in one situation, and then chooses bundle B over bundle C in another situation, then it is revealed that the consumer prefers bundle A over bundle C. 
In this case, the consumer chose bundle 1 over bundle 2 in situation 1 and then chose bundle 2 over bundle 3 in situation 2, which implies that the consumer prefers bundle 1 over bundle 3. However, we know that bundle 3 costs $3,100, so option A cannot be correct. 
Similarly, we know that bundle 2 would cost $1,200 in situation 1, so option D cannot be correct. 
Therefore, the only possible answer is option C, which states that bundle 1 cannot cost less than $3,100 in situation 3 prices.

A Consumer's Behavior Was Observed in Three Situations with Different