Answer to Question #63098 in Microeconomics for Ahamed

Question

TRUE or FALSE. (25 points) All credits are assigned to explanations.
You need to provide adequate explanations to obtain any credit.
(c) Tom's world also consists of Lasagna (l) and Chocolates (c). Tom
however, has the following preference over bundles of l and c: Tom
strictly prefers the bundle (L*; C*) = (5; 5) to any other bundle.
Based on this we can conclude that Tom's preference is strictly
monotonic.
(d) A consumer consumes apple pie and ice cream. She considers
them perfect complements to each other. Then, she must become
strictly worse o_ when the price of ice cream increases.

(e) In the _rst price sealed bid auction with perfect information, if
bidder i has valuation vi, then a bid bi < vi is weakly dominated
by the bid vi

Answer 1

(c) FALSE
Tom prefers more of both the goods - it means that his preference is weakly monotonic, but no strictly monotonic.

(d) TRUE
A consumer should be worse off, while the price of one of the complements increases. She can't substitute ice cream by the apple pie, and she will pay more money for ice cream.

(e) FALSE
In a first-price auction, unlike a second-price auction, a bid bi < vi of player i is not weakly dominated by the bid vi. A bid bi < vi is not weakly dominated by a bid b1i < bi because if the other players’ highest bid is between b1i and bi, then b1i loses, whereas bi wins and yields player i a positive payoff. A bid bi < vi is not weakly dominated by a bid b1i > bi because if the other players’ highest bid is less than bi, then both bi and b1i win and bi yields a lower price.