Question

A consumer is paid each week 4 units of x1 and 4 units of x2 which she may consume directly or trade with other customers at the going rate of exchange. In the first week she trades and finally consumes 5 units of x1 and 3 units of x2. In the second week there is a new rate of exchange and she finally consumes 6 units of x1 and 1 unit of x2. Assuming her tastes remained unchanged for these two weeks: in which week is the consumer better off? (ii) In the third week the exchange rate is such that she could consume 5.5 units of x1 and 2 units of x2, but she prefers instead to consume her initial bundle of 4 units each. Must it be concluded that her tastes have now changed? You must use the Weak Axiom of Revealed Preference to justify your answer.

Answer 1

Answer:

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Explanation:

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