Varian_Chapter03_Preferences

Varian_Chapter03_Preferences - Chapter Three Preferences...

Info iconThis preview shows pages 1–17. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Three Preferences
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Rationality in Economics ± Behavioral Postulate : A decisionmaker always chooses its most preferred alternative from its set of available alternatives. ± So to model choice we must model decisionmakers’ preferences.
Background image of page 2
Preference Relations ± Comparing two different consumption bundles, x and y: strict preference : x is more preferred than is y. weak preference : x is as at least as preferred as is y. indifference : x is exactly as preferred as is y.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Preference Relations ± Strict preference, weak preference and indifference are all preference relations. ± Particularly, they are ordinal relations; i.e. they state only the order in which bundles are preferred.
Background image of page 4
Preference Relations ± denotes strict preference; x y means that bundle x is preferred strictly to bundle y. p p
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Preference Relations ± denotes strict preference; x y means bundle x is preferred strictly to bundle y. ± denotes indifference; x y means x and y are equally preferred. p p
Background image of page 6
Preference Relations ± denotes strict preference so x y means that bundle x is preferred strictly to bundle y. ± denotes indifference; x y means x and y are equally preferred. ± denotes weak preference; x y means x is preferred at least as much as is y. ~ f ~ f p p
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Preference Relations ± x y and y x imply x y. ~ f ~ f
Background image of page 8
Preference Relations ± x y and y x imply x y. ± x y and (not y x) imply x y. ~ f ~ f ~ f ~ f p
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Assumptions about Preference Relations ± Completeness : For any two bundles x and y it is always possible to make the statement that either x y or y x. ~ f ~ f
Background image of page 10
Assumptions about Preference Relations ± Reflexivity : Any bundle x is always at least as preferred as itself; i.e. x x. ~ f
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Assumptions about Preference Relations ± Transitivity : If x is at least as preferred as y, and y is at least as preferred as z, then x is at least as preferred as z; i.e. x y and y z x z. ~ f ~ f ~ f
Background image of page 12
Indifference Curves ± Take a reference bundle x’. The set of all bundles equally preferred to x’ is the indifference curve containing x’ ; the set of all bundles y x’. ± Since an indifference “curve” is not always a curve a better name might be an indifference “set”.
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Indifference Curves x x 2 x x 1 x” x” x”’ x”’ x’ x’ x” x” x”’ x”’ x’
Background image of page 14
Indifference Curves x x 2 x x 1 z z x x y y p p x y z
Background image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Indifference Curves x 2 x 1 x All bundles in I 1 are strictly preferred to all in I 2 .
Background image of page 16
Image of page 17
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/28/2010 for the course ECON 301 taught by Professor Hansen during the Fall '08 term at University of Wisconsin.

Page1 / 54

Varian_Chapter03_Preferences - Chapter Three Preferences...

This preview shows document pages 1 - 17. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online