Preferences

Question 1

Rationality

Answer 1

requires that desirability be independent of feasibility
- a mode of behavior is rational for a given person of this person feels comfortable with it, and is not embarrassed by it, even when it is analyzed for him.

Question 2

Assumptions on Preferences

Answer 2

1. more is better
2. we know what we want
3. we can rank items
4. we are rational

Question 3

Notation

Answer 3

”>” means preferred to
“<” means less preferred then
~ means indifferent to

Question 4

Compleet (preferences)

Answer 4

any two bundles can be compared

Question 5

Reflexive (preferences)

Answer 5

any bundle is at least as good as itself

Question 6

Transitive (preferences)

Answer 6

if the consumer thinsg that X is at least as good as Y and that Y is at least as good as Z then the consumer thinks that X is at least as good as Z
If X >/= Y and Y >/= Z then X >/= Z

Question 7

Indifference Curves

Answer 7

used to show sets of goods and how they relate to each other
- Indifference curves have monotone and convex preferences

Question 8

Monotonicity

Answer 8

more is better, when a bundle is strictly larger it is strictly preferred
- indifference curves must be downward sloping

Question 9

Convex Preference

Answer 9

averages are preferred to extremes
- indifference curves are convex to the origin
- the more you consume of a good the less you value an additional unit

Question 10

Point of Satisfaction

Answer 10

the middle point/the number of good x or the number of good y at which we are satisfied
- the center of circle indifference curve

Question 11

Marginal Rate of Substitution

Answer 11

shows the rate the consumer is willing to trade on good for another
- the slope of the indifference curve

Question 12

Diminishing Marginal Rate of Substitution

Answer 12

the more we have of a good, the more we are willing to give up in trade for one of the other good
- the marginal rate of substitution decreases as we move down an indifference curve

Question 13

Perfect Substitution

Answer 13

when a consumer is willing to trade one good for another at a constant rate. Two goods may be considered a perfect substitute to one person and not to another.

Question 14

Perfect Complements

Answer 14

when goods are consumed in fixed proportion. The indifference curves are L shaped.