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Rubinstein2005-page142 - 12:18 master Sheet number 140 Page...

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October 21, 2005 12:18 master Sheet number 140 Page number 124 Review Problems The following is a collection of questions I have given in exams during the last few years. Problem 1 (Princeton 2002) Consider a consumer with a preference relation in a world with two goods, X (an aggregated consumption good) and M (“membership in a club,” for example), which can be consumed or not. In other words, the consumption of X can be any nonnegative real number, while the consumption of M must be either 0 or 1. Assume that consumer preferences are strictly monotonic, con- tinuous, and satisfy the following property: Property E : For every x there is y such that ( y , 0 ) ( x , 1 ) (that is, there is always some amount of money that can compensate for the loss of membership).
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