Class Notes (1,100,000)

CA (630,000)

U of C (8,000)

BSEN (50)

BSEN 401 (10)

William Huddleston (10)

Lecture

School

University of CalgaryDepartment

Business and EnvironmentCourse Code

BSEN 401Professor

William HuddlestonThis

**preview**shows half of the first page. to view the full**3 pages of the document.**PREFERENCES AND INDIFFERENCES CURVES

For any two consumption bundles (X0, Y0) and (X1, Y1), define an individual’s preference

ranking of each of the two bundles by

1. (X1, Y1) (X0, Y0) means the individual prefers (X1, Y1) to (X0, Y0)

2. (X1, Y1) ~ (X0, Y0) means the individual is indifferent between (X1, Y1) and (X0, Y0)

Preference Assumptions

1. Completeness

For every pair of consumption bundles (X1, Y1) and (X0, Y0), (X1, Y1) (X0, Y0) or (X0,

Y0) (X1, Y1) or (X1, Y1) ~ (X0, Y0)

i.e. The consumer prefers one or other bundle or is indifferent between them. In short the

consumer does not make contradictory choices.

2. Transitivity

(X1, Y1) (X0, Y0) and (X0, Y0) (X2, Y2) => (X1, Y1) (X2, Y2)

(where means either preferred to or indifferent to)

3. Non-Satiation (More is always preferred to Less)

If both X1 or Y1 are at least equal to X0 or Y0 respectively and at least one of X1 or Y1 is a

greater amount than X1 or Y1 respectively, then

(X1, Y1) (X0, Y0)

This assumption is sometimes called the monotonicity of preferences

4. Convex

The less one has of a good, the more one requires of the other good in exchange to remain

indifferent.

[Assumption 1 follows from the assumption that economic agents are rational

###### You're Reading a Preview

Unlock to view full version