HW2_Key - ECO 3301 Fall 2010 Homework 2: Answer Key The due...

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Homework 2: Answer Key The due date for this assignment is Monday, September 20 (beginning of class) 1. Since more of each good is preferred to less, we can conclude that a market basket is preferred to an alternative basket if it lies above and to the right of the alternative basket. So, bundle B is preferred to all other bundles. A is preferred to D, C is 2. Transitivity and More is Better together imply that indi/erence curves cannot cross. If two indi/erence curves did cross, then by choosing three points, A, B, and C in the following way. A lies on the ±rst indi/erence curve, B is the intersection point, C lies on the second curve, and A lies to the left and below point C. It is easily shown that the two axioms cannot both be satis±ed. A is at least as preferred as B, and B is at least as preferred as C. By transitivity A is at least as preferred as C, contradicting More is Better. See ±gure below. 3.
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HW2_Key - ECO 3301 Fall 2010 Homework 2: Answer Key The due...

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