Chapter3 - Chapter 3 Preferences 1 Preferences are...

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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 x -bundle is strictly preferred to the y -bundle (b) ( x 1 , x 2 ) ( y 1 , y 2 ) means that the x -bundle is regarded as indifferent to the y -bundle (c) ( x 1 , x 2 ) ( y 1 , y 2 ) means the x -bundle is at least as good as (preferred to or indifferent to) the y -bundle 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.
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