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