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True/False
Indicate whether the statement is true or false.
____
1.
The strong axiom of revealed preference requires that if a consumer chooses
x
when he can afford
y
and
chooses
y
when he can afford
z
, then he will not choose
z
when he can afford
x
.
____
2.
Rudolf Rational obeys the weak axiom of revealed preferences. His preferences don’t change over time. One
year he could afford bundle
x
but bought bundle
y
. If another year he buys bundle
x
, then he can’t afford
bundle
y
.
____
3.
If a consumer maximizes a utility function subject to a budget constraint and has strictly convex preferences,
then his behavior will necessarily satisfy the weak axiom of revealed preference and the strong axiom of re
vealed preference.
____
4.
The Laspeyres index of prices in period 2 relative to period 1 tells us the ratio of the cost of buying the period
1 bundle at period 2 prices to the cost of buying the period 1 bundle at period 1 prices.
____
5.
The Laspeyres price index differs from the Paasche price index because the Laspeyres index holds prices con
stant and varies quantities while the Paasche price index holds quantities constant and varies prices.
____
6.
Patience was maximizing her utility subject to her budget constraint. Prices changed and Patience was less
well off than before. Therefore, at the old prices her new bundle must cost less than her old bundle.
____
7.
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.
____
8.
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 Spring '09
 AVRINRAD

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