New Click here to enroll in UIICL SO Finance and Investment Course

    Register

    Question

    A consumer purchases x1 = 40, x2 = 20 at the prices p1 = 4 and p2 = 12. He is also observed to purchase x1 = 36 and x2 = 8 at the prices p1 = 6 and p2 = 10. Which of the following is correct?

    A It violates WARP Correct Answer Incorrect Answer
    B It violates SARP Correct Answer Incorrect Answer
    C It is consistent with WARP Correct Answer Incorrect Answer
    D It is consistent with SARP Correct Answer Incorrect Answer

    Solution

    Here the consumer purchases bundle (x1,x 2 ) when bundle (x,x 2 )* was available. And the consumer purchases bundle (x1,x 2 )* when (x,x 2 ) was not affordable. So, it follows WARP. If someone prefers a 12 then he/she should not prefer a 21 SARP is related to indirect revealed preference case. So, you need at least 3 bundles. Here 2 options in the question can easily be removed.

    Practice Next