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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 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.(a) graph the set of bundles that are indifferent to some bundle (see figure 3....
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- Summer '10