Question: Consider a setting where L = 3 and a consumer whose consumption set is R (i.e., allowing for a negative demand). Suppose that the

Consider a setting where L = 3 and a consumer whose consumption

Consider a setting where L = 3 and a consumer whose consumption set is R (i.e., allowing for a negative demand). Suppose that the consumer's observed demand function is given by x (p, w) = P2 P3 x (p,w) = - P P3 and x3 (p, w) = W P3 (a) Show that the observed demand x(p, w) = (x1, x2, x3) is homogeneous of degree zero in (p, w) and satisfies Walras' law. (b) Show that x violates the weak axiom of revealed preference (WARP). (c) Show that v S(p, w)v = 0 for every v ER, where S(p, w) indicates the Slutsky matrix.

Step by Step Solution

3.46 Rating (159 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

a Wal ras law states that the total demand for goods must equal the total income of the consumer We can calculate the total demand by sum ming the ind... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related General Management Questions!