At prices (p1, p2)= ($4, $1), George buys the bundle (x₁, x₂)= (10, 20).At prices (p'₁, p'₂)= ($1, $4), he buys the bundle (x'₁, x'₂)= (4, 14).At prices (p''₁, p''₂), he buys the bundle (x''₁, x''₂)= (20, 10).If his preferences satisfy the strong axiom of revealed preferences, then it must be that A)10p''₁

Question

At prices (p1, p2)= ($4, $1), George buys the bundle (x₁, x₂)= (10, 20).At prices (p'₁, p'₂)= ($1, $4), he buys the bundle (x'₁, x'₂)= (4, 14).At prices (p''₁, p''₂), he buys the bundle (x''₁, x''₂)= (20, 10).If his preferences satisfy the strong axiom of revealed preferences, then it must be that A)10p''₁ < 10p''₂. B)10p''₁ < 8p''₂. C)8p₁ > 8p₂. D)p''₁ = p''₂. E)None of the above.

Quizplus · Accepted Answer

The strong axiom of revealed preferences states that if a consumer chooses bundle A over bundle B at prices p, then they will not choose bundle B over bundle A at any other prices. In this case, George chooses bundle (10, 20) over bundle (4, 14) at prices (p1, p2)= ($4, $1). Therefore, he will not choose bundle (4, 14) over bundle (10, 20) at any other prices. This means that 10p''₁ < 10p''₂.

At Prices (P1, P2)= ($4, $1), George Buys the Bundle