Class Notes (809,038)
BSEN 401 (13)
Lecture

# PREFERENCES AND INDIFFERENCES CURVES.docx

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School
University of Calgary
Department
Course
BSEN 401
Professor
William Huddleston
Semester
Fall

Description
PREFERENCES AND INDIFFERENCES CURVES For any two consumption bundles (X , Y ) an0 (X 0 Y ), def1ne a1 individual’s preference ranking of each of the two bundles by 1. (X 1 Y 1  (X , 0 ) m0ans the individual prefers (X , Y ) to1(X ,1Y ) 0 0 2. (X 1 Y 1 ~ (X ,0Y ) 0eans the individual is indifferent between (X , Y ) and 1X ,1Y ) 0 0 Preference Assumptions 1. Completeness For every pair of consumption bundles (X , Y ) an1 (X1, Y ), (X 0 Y 0  (X 1 Y 1 or (X ,0 0 0 Y 0  (X ,1Y )1or (X , 1 ) ~1(X , Y )0 0 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 (X 1 Y 1  (X , 0 ) 0nd (X , Y )0 (0 , Y ) 2> (X2, Y )  (1 , 1 ) 2 2 (where  means either preferred to or indifferent to) 3. Non-Satiation (More is always preferred to Less) If both X 1r Y ar1 at least equal to X or Y 0espect0vely and at least one of X or Y is a 1 1 greater amount than X or Y1respec1ively, then (X 1 Y 1  (X , 0 ) 0 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 Assumption 2 is actually an assumption since transitivity need not necessarily hold. Indeed, transitivity for groups of individuals often does not hold. Assumption 3 and 4 are actually assumptions about well-behaved indifference curves. Assumpt
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