Asked by Benjamin Cohen on Jul 11, 2024
Verified
It follows from the weak axiom of revealed preference that if a consumer chooses x when he could afford y and chooses y when he could afford x, then his income must have changed between the two observations.
Weak Axiom
In economic theory, a principle stating that if a consumer prefers bundle A to bundle B, then they will not prefer B to A when prices change, keeping income constant.
Revealed Preference
A theory suggesting that consumers' preferences can be determined by observing their purchasing behavior and the choices they make among different goods.
- Understand the Weak Axiom of Revealed Preference (WARP) and how it applies to consumer choices.
Verified Answer
MS
Matthew SalihJul 16, 2024
Final Answer :
False
Explanation :
The weak axiom of revealed preference simply states that if a consumer prefers bundle x to bundle y when both are affordable, they will not prefer y to x if both are still affordable later, without implying anything about changes in income.
Learning Objectives
- Understand the Weak Axiom of Revealed Preference (WARP) and how it applies to consumer choices.