micro-fall2007-6 - Households Preferences An important...

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Households Preferences An important property of the utility function The indi/erence curves remain unchanged under any monotonic transformation of the utility function. Let f : R ! R be a strictly increasing function. Then, ( i ) f ( u ( x )) = f ( u ( z )) () u ( x ) = u ( z ) . ( ii ) MRS ( x ) : = dx 2 dx 1 = f 0 ( ± ) u ( ± ) x 1 f 0 ( ± ) u ( ± ) x 2 = u ( ± ) x 1 u ( ± ) x 2 Ani Guerdjikova ECON 313 Fall 2007 74 ± 80
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Households Preferences Properties of the preference relation A representation of preferences by means of a utility function is 1 Completeness For all x , z 2 X x % z z % x x % z and z % x Ani Guerdjikova ECON 313 Fall 2007 75 / 80
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Preferences Properties of the preference relation A representation of preferences by means of a utility function is 1 Completeness For all x , z 2 X x % z z % x
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micro-fall2007-6 - Households Preferences An important...

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