notes march 31st - Notes comm402 Internal Exchange formal...

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Notes comm402 3/31/10 Internal Exchange: formal model o 1) Consumer has set of preferences and knows them. I.e., can choose o 2) Preferences are transitive. A>B>C so A>C o 3) More of something will always be preferred to less of it Internal exchange: formal model o Already can see an impossible indifference curve. Pg 198 It implies that less of both goods is equivalent in utility to more of them Its curve is an arc from lower left to upper right Internal exchange: formal model o Oddly shaped (legal) indifference curves. P. 199 Concave curve (u2) – ‘belly’ is toward upper right of graph Produces corner solutions monogamy behavior Straight lines (u3) generate either corner solution or no unique solution at all (e.g. if budget line is right on top of it) Internal exchange: formal model o 4) indifference curves must be convex Ie, ‘belly’ points toward the origin o This assumption added because authors prefer not to mess with the odd shapes
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