Question: As shown in the following figure, a consumer buys two goods, food and housing, and likes both goods. When she has budget line BL1, her

As shown in the following figure, a consumer buys two goods, food and housing, and likes both goods. When she has budget line BL1, her optimal choice is basket A. Given budget line BL2, she chooses basket B, and with BL3, she chooses basket C.

a) What can you infer about how the consumer ranks baskets A, B, and C? If you can infer a ranking, explain how. If you cannot infer a ranking, explain why not.
b) On the graph, shade in (and clearly label) the areas that are revealed to be less preferred to basket B, and explain why you indicated these areas.
c) On the graph, shade in (and clearly label) the areas that are revealed to be (more) preferred to basket B, and explain why you indicated these areas.

BL BL2 Food BL3

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a From figure 421 we can infer that that and therefore by transitivity that First A must be st... View full answer

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