Question

combinations	X	Y
A	10	10
B	12	12
C	10	8
D	8	12

can we conclude that

(a) B>A?

(b)D>A?

(c) if D>A, then D>C?

Explain please.

I believe this relates to indifference curves. This is a chart of consumer preferences.

Answer 1

Option 'A' and 'C' are correct.

The assumption underlying the indifference approach is that consumer are rational. So, at one point if they are getting more products than at the other point, he will chose the option where he is acquiring more products provided other aspects like quality is unaltered.

Here, in A one gets 20(X+Y = 10+10) whereas, in B, one gets 24(X+Y=12+12). So, B is a better option than 'A'. Therefore, Option 'A' is correct.

Also, one of the assumption is that one can rank his preference of combination of goods based on the satisfaction they yield. However, he can’t quantitatively express how much he prefers a certain good over the other. Since , D & A is providing same number of products,it's difficult to say quantitatively which one would the customer prefer as we don't know which one would suffice the customer. Hence, we cannot say D>A.

In general, Indifference curve also assumes if D>A and A>C then D>C.

Here,if D>A, it means the customer is ready to forego X to get more Y.Therefore, he is happy with 8 X instead of 10 X if he gets 12 Y. Now , in D he is getting 8 X and 12 Y. But ,C would give him 10X and 8Y(total of 10+18=18, which is less than 8+12=20). Also, he is ready to forego X in exchange of more Y. But in Option 'C', his total consumption is coming down to 18. So, If D>A ,then D>C is true as he wouldn't matter X coming down as it may not suffices him as Y does ,provided Y is increased.