preferences - ECON 302 Ali Toossi Some notes on assumptions...

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Ali Toossi Some notes on assumptions on preferences Is more always better? “Rational” choice does not require that a consumer always prefers more to less. A rational consumer can be satiated. EXAMPLE: In a Happy Hour, where food and drinks are free, individuals stop eating and drinking when they become “satiated”, i.e., when additional food and drinks make them worse off. QUESTION: How can we represent indifference curves in these situations? Suppose that the two items consumed in a Happy Hour are Chips and Beer. Suppose that the “bliss” point for an individual is (C*,B*). If the individual was forced to drink more than B* bottles of beer, he would be worse off. Similarly, if he was forced to eat more than C* number of chips, he would be worse off. Then, the utility “mountain” would have a peak at (C*,B*). All indifference curves would describe “elevations” around that peak. 1
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preferences - ECON 302 Ali Toossi Some notes on assumptions...

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