Chapter Three Preferences
Chapter Three Preferences
Contents Describe preferences Indifference curves Well-behaved preferences Marginal rate of substitution
Contents Describe preferences Indifference curves Well-behaved preferences Marginal rate of substitution
Rationality in Economics Behavioral postulate a decisionmaker always chooses its most preferred alternative from its set of available alternatives So to model choice we must model decisionmakers' preferences
Rationality in Economics Behavioral Postulate: A decisionmaker always chooses its most preferred alternative from its set of available alternatives. So to model choice we must model decisionmakers’ preferences
Preference relations Comparing two different consumption bundles, x and y strict preference: x is more preferred than is y weak preference: x is as at least as preferred as is y indifference x is exactly as preferred as is y
Preference Relations Comparing two different consumption bundles, x and y: – strict preference: x is more preferred than is y. –weak preference: x is as at least as preferred as is y. – indifference: x is exactly as preferred as is y
Preference relations Strict preference, weak preference and indifference are all preference relations Particularly, they are ordinal relations; ie. they state only the order in which bundles are preferred
Preference Relations Strict preference, weak preference and indifference are all preference relations. Particularly, they are ordinal relations; i.e. they state only the order in which bundles are preferred
Preference relations s denotes strict preference; x>y means that bundle x is preferred strictly to bundle y
Preference Relations denotes strict preference; x y means that bundle x is preferred strictly to bundle y. p p
Preference relations s denotes strict preference; x>y means bundle x is preferred strictly to bundle y. denotes indifference; xy means x and y are equally preferred
Preference Relations denotes strict preference; x y means bundle x is preferred strictly to bundle y. ~ denotes indifference; x ~ y means x and y are equally preferred. p p
Preference relations s denotes strict preference so x>y means that bundle x is preferred strictly to bundle y. denotes indifference; xy means x and y are equally preferred denotes weak preference x y means x is preferred at least as much as is y
Preference Relations denotes strict preference so x y means that bundle x is preferred strictly to bundle y. ~ denotes indifference; x ~ y means x and y are equally preferred. denotes weak preference; x y means x is preferred at least as much as is y. ~ f ~ f p p
Preference relations x y andy x imply xy
Preference Relations x y and y x imply x ~ y. ~ f ~ f
Preference relations x y andy x imply xy X y and(not y x)imply x>y
Preference Relations x y and y x imply x ~ y. x y and (not y x) imply x y. ~ f ~ f ~ f ~ f p
