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3. This question is designed to examine how we can utilize our basic theory without having an explicit indifference curve. Suppose Lia has an income
3. This question is designed to examine how we can utilize our basic theory without having an explicit indifference curve. Suppose Lia has an income of Y= $500 and only consumes two good: memory sticks (to store free economics papers she downloads from the library) and hardcover novels (which she refuses to check out from the library). Furthermore, let the price of memory sticks be PS=$25 and the price of hardcover novels be PN=$20. (b) Before Lia makes any purchases, the place she purchases books from offers the following deal: any additional books purchased after the first 10 will get a 25% discount. Use a revealed preferences argument to explain how we know Lia will be better off. Would this be true for all utility functions? Explain why or why not. 3. This question is designed to examine how we can utilize our basic theory without having an explicit indifference curve. Suppose Lia has an income of Y= $500 and only consumes two good: memory sticks (to store free economics papers she downloads from the library) and hardcover novels (which she refuses to check out from the library). Furthermore, let the price of memory sticks be PS=$25 and the price of hardcover novels be PN=$20. (b) Before Lia makes any purchases, the place she purchases books from offers the following deal: any additional books purchased after the first 10 will get a 25% discount. Use a revealed preferences argument to explain how we know Lia will be better off. Would this be true for all utility functions? Explain why or why not
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