7. A consumer has preferences for coffee and pancakes that are complete, continu

Question

7. A consumer has preferences for coffee and pancakes that are complete, continuous, transitive, monotonic, and convex. At her current consumption bundle on the budget line, you could take away a maximum of 2 cups of coffee if you give her 5 extra pancakes without changing her utility. The price of a cup of coffee is $4, and the price of a pancake is $1. Assume you graph pancakes on the X-axis and coffee on the Y-axis. At the current consumption bundle, the bang per buck is higher for pancakes than coffee, and the consumer’s indifference curve is flatter than her budget line.

a. True

b. False

Explanation / Answer

Ans

False. E. G the indifference curve is more steep than the slope of price line because actual price of coffee is 4 but according to preferences it should be 2.5 only

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