True/False 1. Label the following statements as true/false. If a statement is fa

Question

True/False 1. Label the following statements as true/false. If a statement is false briefly explain why. a) Suppose we have income M, and two goods 1 and r2 with respective prices p and p2 (where Ph.P2 >0. If P2 increases, all else constant, then the feasible set will increase p2 increases else constant, then the feasible set will increase b) Suppose there are four bundles a consumer can choose from: A-(1,4), B(2,3), C (2,4), D- (3,3). The consumer receives 10 utility from bundle D (U(D) 10), and U(B) 8, U(C) 6, U(A) 4. This consumer's preferences are wel-behaved c) A utilty function is a functional representation of a consumer's indifference map. Each level of utility corresponds to a unique indifference curve.

Explanation / Answer

A) False. Feasible set is the bundles you can purchase with your income whereas increase in price of Good2 will decrease the purchasing power and thus feasible set

B)False because when we move from B to C or from B to D, there is an increase in quantity of one good whereas qty of other is same, thus to have both good to be normal, utility should increase. Thus utility should increase but it decreases. Thus it doesnot shows well behaved preference.

C)True

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