Chapter 3
Review: Preferences
People choose the best things they can afford.
3.1
Consumer preferences
(
x
1
, x
2
)
´
(
y
1
, y
2
) means the xbundle is strictly preferred to the ybundle.
(
x
1
, x
2)
∼
(
y
1
, y
2
) means that the xbundle is regarded as indifferent to the
ybundle.
(
x
1
, x
2)
”
(
y
1
, y
2
) means the xbundle is at least as good as (preferred to
or indifferent to) the ybundle.
3.2
Assumptions about preferences
1.
Complete:
Any two bundles can be compared. (
x
1
, x
2
)
”
(
y
1
, y
2
) or
(
y
1
, y
2
)
”
(
x
1
, x
2
), or both.
2.
Reflexive:
Any bundle is at least as good as itself, i.e.
(
x
1
, x
2
)
”
(
x
1
, x
2
).
3.
Transitive:
If (
x
1
, x
2
)
”
(
y
1
, y
2
) and (
y
1
, y
2
)
”
(
z
1
, z
2
), then (
x
1
, x
2
)
”
(
z
1
, z
2
).
1
1
Transitivity is necessary for the theory of optimal choice.
1
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
2
CHAPTER 3.
REVIEW: PREFERENCES
3.3
Indifference curve
Indifference curves are a way to describe preferences. Say, you pick a certain
consumption bundle (
x
1
, x
2
) as in the figure below, then the shaded area
are all consumption bundles that are weakly preferred to (
x
1
, x
2
), which
This is the end of the preview.
Sign up
to
access the rest of the document.
 Spring '10
 YY
 Microeconomics, indifference curves, Monotonicity

Click to edit the document details