Preferences

Suppose water is sold at a store. They come in either a gallon or a quart. There are four quarts in a gallon, and you only care about the amount of water.

(a) Draw three indifference curves for this situation, clearly labeling the bundle values (1, 2) on at least three points. Suppose your friend wins a contest.

She is given the following possibilities for prizes:

i. $100 and three toys 1

ii. $200 and two toys

iii. $300 and one toy

(b) She prefers option (i) over option (ii), and option (ii) over option (iii). Name one addition preference relation that definitely cannot be true if the above two are true, and explain why.