Lisa consumes bus rides, good X, and other goods, good Y. Because of the nonsatiation assumption, Lisa must like bundle A : (x = 5, y = 1,000) better than bundle B = (x = 6, y = 800).

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Lisa consumes bus rides, good X, and other goods, good Y.  Because of the nonsatiation assumption, Lisa must like bundle A : (x = 5, y = 1,000) better than bundle B = (x = 6, y = 800).

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The question presents two bundles: A = (x = 5, y = 1000) and B = (x = 6, y = 800), and asks whether Lisa must like A better than B due to the nonsatiation assumption.

Option 1 (True): This would assert that A is preferred to B purely based on the nonsatiation idea. However, nonsatiation means more of at least one good is preferred to less, holding the other good fixed. It does not dictate a strict ranking when one bundle has more of one good but less of another. Since A has less x (5 vs 6) but more y (1000 vs 800), the overall preference depends on Lisa’s trade-off between x and y. Therefore, the claim that A must be preferred is not guaranteed by nonsatiation alone.

Option 2 (False): This option correctly captures the limitation described above. Nonsatiation does not imply that any particular trade-off between two goods is always preferred; it only ensures that more of at least one good (and not less of both) is preferred in some sense, and even that depends on the rest of the consumer’s preferences and the marginal rates of substitution between x and y. Since A has less of x but more of y than B, there is no reason to conclude A is unequivocally preferred. The true statement would recognize that the preference between A and B is indeterminate from nonsatiation alone and would require the entire indifference curves or utility function to determine.

In sum, the claim that Lisa must like A better than B cannot be asserted from nonsatiation alone, because the two bundles involve a trade-off between two goods and nonsatiation does not fix that trade-off. The correct interpretation is that the statement is not necessarily true, given only nonsatiation.

SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 4, Individual Portion

Lisa consumes bus rides, good X, and other goods, good Y. Because of the nonsatiation assumption, Lisa must like bundle A : (x = 5, y = 1,000) better than bundle B = (x = 6, y = 800).

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