state whether each of the following statements is true or false. Using diagrams and appropriate assumptions, explain your response
a, Two indifference curve can intersect
b. Cash gift is the best gift
I would say both of them is false, but having hard time to explain it
I have figured out the first one, but for the second, it seems right or wrong, both work, depends on how you interpret it, right?
Oct 6th 2010, 08:53 PM
First false and second true. The first false since it would disagree with the transitivity of demand. The second is true since paying cash is at least as good as giving a good. If you forsee the optimal choice of an individual you can set him as good as he would set himself if you just gave him/her the money. In other terms: Paying cash is weakly Pareto dominant.