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Questions › DSE › DSE 2007 › Q5
1 markMicroeconomics › Consumer preferences and utility › Revealed preferenceHardabout 4 min

DSE 2007 Question 5: Consumer preferences and utility

In the figure, the original budget line was 5F+10C=2005F+10C=2005F+10C=200, and Anita purchased 30 units of F and 5 units of C. At two later dates, budget lines (1) and (2) applied, with the same preferences throughout. As a rational consumer, which market baskets (labelled A, B, C, D on the figure) might she have purchased at the later dates?

Budget-line diagram with Food (F) on the horizontal axis and Clothing (C) on the vertical axis. The bold original budget line runs from C = 20 on the vertical axis to F = 40 on the horizontal axis and passes through the original bundle (F = 30, C = 5), marked by dotted lines to both axes. Two later budget lines also pass through (30, 5): line (1) is flatter (lower vertical intercept, below 20, and a horizontal intercept beyond 40), with point C on it up and to the left of (30, 5) and point A on it down and to the right; line (2) is steeper (vertical intercept above 20, drawn only down to just past D, short of F = 40), with point B on it up and to the left of (30, 5) and point D on it down and to the right. A and B lie outside (above) the original budget line; C and D lie inside (below) it.
Budget-line diagram with Food (F) on the horizontal axis and Clothing (C) on the vertical axis. The bold original budget line runs from C = 20 on the vertical axis to F = 40 on the horizontal axis and passes through the original bundle (F = 30, C = 5), marked by dotted lines to both axes. Two later budget lines also pass through (30, 5): line (1) is flatter (lower vertical intercept, below 20, and a horizontal intercept beyond 40), with point C on it up and to the left of (30, 5) and point A on it down and to the right; line (2) is steeper (vertical intercept above 20, drawn only down to just past D, short of F = 40), with point B on it up and to the left of (30, 5) and point D on it down and to the right. A and B lie outside (above) the original budget line; C and D lie inside (below) it.

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Plain-text version

In the figure, the original budget line was 5F+10C=200, and Anita purchased 30 units of F and 5 units of C. At two later dates, budget lines (1) and (2) applied, with the same preferences throughout. As a rational consumer, which market baskets (labelled A, B, C, D on the figure) might she have purchased at the later dates? (A) A, B (B) A, D (C) B, C (D) C, D

Consumer preferences and utility has come up 93 times in 7 exams since 2007.

What this question tests

This question is on Revealed preference, part of Consumer preferences and utility in Microeconomics.

Inferring preferences from observed choices: the weak and strong axioms of revealed preference and consistency checks.

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