Preference assumptions
- completeness
- everyone has a preference for everything
- indifference is ok; but you cannot say ‘I don’t know.’
- transitivity
- Non satiation
- more is always better
Indifference curves
- all combination of choices among which you are indifference
4 properties
- consumer prefer higher indifference curves
- cause more is better
- indifferent curves are downward sloping
- the principle of non-satiation; more is better
- indifference curves never cross
- this violate the principle of transitivity
- only one indifferent curve through every bundle
- completeness, you always know how you feel
Mathematical representation
utility function: a math function to represent your preference
- diminishing margin utility
- 边界效益下降
- match the three preference assumptions
utility function is relevant; well margin utility is always positive and always diminishing
the marginal rate of substitution
the rate at which you are will to substitute A for B
the slope of the indifferent curve
