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Unformatted text preview: Chapter 3  Preferences 1. Preferences are relationships between bundles. (a) if a consumer would choose bundle ( x 1 ,x 2 ) when ( y 1 ,y 2 ) is available, then it is natural to say that bundle ( x 1 ,x 2 ) is preferred to ( y 1 ,y 2 ) by this consumer. (b) preferences have to do with the entire bundle of goods, not with individual goods. 2. Notation (a) ( x 1 ,x 2 ) ( y 1 ,y 2 ) means the xbundle is strictly preferred to the ybundle (b) ( x 1 ,x 2 ) ( y 1 ,y 2 ) means that the xbundle is regarded as indifferent to the ybundle (c) ( 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. Assumptions about preferences (a) complete  any two bundles can be compared (b) reflexive  any bundle is at least as good as itself (c) transitive  if X Y and Y Z , then X Z transitivity necessary for theory of optimal choice 4. Indifference curves (a) graph the set of bundles that are indifferent to some bundle (see figure 3.1.(a) graph the set of bundles that are indifferent to some bundle (see figure 3....
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 Summer '10
 IOANADAN

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