Suppose there are only two goods: Beer and Milk. Tom’s preference over bundles of beer and milk is as follows: For any two bundles A = (bA, mA) and B = (bB, mB) (where b and m denotes the amount of beer and milk, respectively), A ≿ B (i.e., “A is at least as good as B”) if and only if: Either bA > bB; Or bA = bB and mA ≥ mB. In other words, Tom cares, first and foremost, about the amount of beer, but if the two bundles contain the same amount of beer, then he prefers having more milk to less. • Is Tom’s preference complete? If yes, show why; if no, give an example of two bundles which Tom cannot compare. • Is Tom’s preference monotone? Strongly monotone? • Does Tom’s preference comply with the property of diminishing marginal rate of substitution?
Question
Suppose there are only two goods: Beer and Milk. Tom’s preference over bundles of beer and milk is as follows: For any two bundles A = (bA, mA) and B = (bB, mB) (where b and m denotes the amount of beer and milk, respectively), A ≿ B (i.e., “A is at least as good as B”) if and only if:
Either bA > bB;
Or bA = bB and mA ≥ mB.
In other words, Tom cares, first and foremost, about the amount of beer, but if the two bundles contain the same amount of beer, then he prefers having more milk to less.
• Is Tom’s preference complete? If yes, show why; if no, give an example of two bundles which Tom cannot compare.
• Is Tom’s preference monotone? Strongly monotone?
• Does Tom’s preference comply with the property of diminishing marginal rate of substitution?
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