Question

Does someone know how to solve this please been answered before but been wrong and confusing can you please help thanks!! PART B ONLY PLEASE

(a) Explain the broad approach used in Revealed Preference Theory and how this differs from the neoclassical consumer approach. Your answer should include the Principle of Revealed Preference and the axioms of Revealed Preference Theory. [60% mark) (b) Mr. A: Shopkeeper: Mr. A: Mr. B: Mr. A: "Beer is 30p a bottle, isn't it? I shall buy one bottle". "I'm sorry sir, beer is 40p a bottle". "In that case, I shall buy two bottles". "Mr. A. here is a present of 10p". (pocketing the 10p): "I didn't expect that! Now I shall buy three bottles instead of two". When the price increases from 30p to 40p, beer is a Giffen good to Mr. A. Draw the usual indifference curves to show that this behaviour is consistent with the axioms of neoclassical consumer theory. More generally, and with the aid of a diagram, explain the circumstances under which a Giffen good arises. (ii) With the present of 10p show that Mr A's behaviour is inconsistent with rational behaviour using either Revealed Preference Theory or otherwise. [40% mark]

Answer 1

i) When the price increases from 30p to 40p, beer is the giffen good for Mr A.

Giffen goods are referred to those goods which do not fall under the law of demand and the quantity demanded of giffen good rises with the rise in its own price.

L 0 Indifference але - Giffen Good , 9293 4 Substitution effect 2 Incore effect Suboth hand CamScanner

ii) With the present of 10p Mr A's behavior is consistent with the rational behavior because of the revealed preference theory effect.

Revealed preference theory, spearheaded by economist Paul Samuelson, is a technique for investigating decisions made by people, generally utilized for contrasting the impact of approaches on buyer conduct. Revealed preference models accept that the preferences of shoppers can be revealed by their obtaining propensities.

Preference theory accept that a large portion of our choices focus on our earlier conduct information and especially on our schedules. In addition, it hypothesizes that basic leadership is basically guided by the powerful responses that are inspired by the options viable.