isi 2012 ME II

[neha 1]

we ll consider the price of good x as 1?
so the two equations are x+y =40 and x+ y =45
i am still not able to get it pls help

[Dheeraj]

here the price of y is Re. 1 for selling and buying both. But the price of x is Re. 1 for selling and Re. 3 for buying. So the budget lines would be as following:

for A:   x+y = 40  ; x<=25
          3x+y = 90 ; 25<= x <= 30

and for B:   x+y = 45 ; x<=15
               3x+y = 75 ; 15<= x <= 25

now for draw both these budget lines and see their final consumption. And check their preference by revealed preference.

[neha 1]

thanks ...but why x is between 25 to 30 in the second case?
total amont of good x =25 +15=40
so it shld be 3x +y =120 ;25<=x<=40
pls explain

[Dheeraj]

x is between 25 and 30 in case of A. If A only wants to consume x, he will sell his endowment of y (15) for 15 rs and from this he can only buy 5 units of x. So his maximum consumption of x is 25+5 = 30

[neha 1]

ya right ...thanks
both have kinks on their endowmnt points
and becos of the common portion we can say both A and B can have same preferences ?

[Dheeraj]

yeah...both can have same preferences

[Dreyfus]

Y A and  B can hv same preferences........ ?
I mean b's final consumption bundle lies under A's budget constraint den y dey can hv same preferences......

[Dheeraj]

you can think about it using the theory of revealed preferences. when A chooses the optimal bundle, the optimal bundle of B is available to him, but when B chooses his optimal bundle, the optimal bundle of A is not available. So this is not a violation of WARP or SARP, so they can have same preferences

[Dreyfus]

Thanks.....