True, false, uncertain? Please explain your answer (50 words at most)! A consumer that buys bundle x' at prices p’, i = 0,1 satisfies WARP

Economics Nov 25, 2020

True, false, uncertain? Please explain your answer (50 words at most)! A consumer that buys bundle x' at prices p’, i = 0,1 satisfies WARP. pº = (2,6), x° = (20, 10); p = (3,5), x' = (18, 4)

Expert Solution

Given consumer buys bundle xⁱ at price pⁱ , i=0,1

p⁰= (2,6) , x⁰=(20,10) , p¹= (3,5) , x¹= (18,4)

	x⁰	x¹
p⁰	100	60
p¹	110	74

Here from the above table, 100 is calculated as by multiplying the commodity bundles of x⁰ with price p⁰, that is [(2*20)+(6*10)] = 100. The rest is calculated by the same way.

Here x⁰ is purchased at p⁰ even when x¹ is affordable. But at p¹ , x¹ is purchased and x⁰ is not affordable.

So WARP is satisfied.

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