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Here Is A Table That Illustrates Some Observed Prices and

The document presents a table illustrating observed prices and choices for three goods across three situations. It asks the reader to: 1. Fill in the table with the values of bundles from different situations at given prices. 2. Indicate if one bundle is directly revealed preferred to another based on the table. 3. Indicate if the observations violate the weak axiom of revealed preference or strong axiom of revealed preference based on the directly and indirectly revealed preferences.

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92 views

Here Is A Table That Illustrates Some Observed Prices and

The document presents a table illustrating observed prices and choices for three goods across three situations. It asks the reader to: 1. Fill in the table with the values of bundles from different situations at given prices. 2. Indicate if one bundle is directly revealed preferred to another based on the table. 3. Indicate if the observations violate the weak axiom of revealed preference or strong axiom of revealed preference based on the directly and indirectly revealed preferences.

Uploaded by

trilocksp Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Solved: Here is a table that illustrates some observed

prices and
Here is a table that illustrates some observed prices and

Here is a table that illustrates some observed prices and choices for three different goods at
three different prices in three different situations.

(a) We will fill in the table below as follows. Where i and j stand for anyof the letters A, B, and C
in Row i and Column j of the matrix, write the value of the Situation-j bundle at the Situation-i
prices. For example, in Row A and Column A, we put the value of the bundle purchased in
Situation A at Situation A prices. From the table above, we see that in Situation A, the consumer
bought bundle (2, 1, 3) at prices (1, 2, 8). The cost of this bundle A at prices A is therefore
(1×2)+(2×1)+(8×3) = 28, so we put 28 in Row A, Column A. In Situation B the consumer bought
bundle (3, 4, 2). The value of the Situation-B bundle, evaluated at the situation-A prices is (1 ×
3) + (2 × 4) + (8 × 2) = 27, so put 27 in Row A, Column B. We have filled in some of the boxes,
but we leave a few for you to do.

(b) Fill in the entry in Row i and Column j of the table below with a D if the Situation-i bundle is
directly revealed preferred to the Situation-j bundle. For example, in Situation A the consumer’s
expenditure is $28. We see that at Situation-A prices, he could also afford the Situation-B
bundle, which cost 27. Therefore the Situation-A bundle is directly revealed preferred to the
Situation-B bundle, so we put a D in Row A, Column B. Now let us consider Row B, Column A.
The cost of the Situation-B bundle at Situation-B prices is 32. The cost of the Situation-A bundle
at Situation-B prices is 33. So, in Situation B, the consumer could not afford the Situation-A
bundle. Therefore Situation B is not directly revealed preferred to Situation A. So we leave the
entry in Row B, Column A blank. Generally, there is a D in Row i Column j if the number in the ij
entry of the table in part (a) is less than or equal to the entry in Row i, Column i. There will be a
violation of WARP if for some i and j, there is a D in Row i Column j and also a D in Row j,
Column i. Do these observations violate WARP?

(c) Now fill in Row i, Column j with an I if observation i is indirectly revealed preferred to j. Do
these observations violate the Strong Axiom of Revealed Preference?

Here is a table that illustrates some observed prices and

ANSWER
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