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