In thinking about a consumer’s preferences over bundles of goods, explain what i
ID: 1136788 • Letter: I
Question
In thinking about a consumer’s preferences over bundles of goods, explain what is meant by strict preference, indifference, and weak preference. In your own words, explain what is meant by the axioms of reflexivity and transitivity. State and explain carefully the two key features of well-behaved consumer preferences. Illustrate in a diagram an indifference map for a consumer that has well-behaved preferences. (Remember to label the diagram). Also use an indifference map to explain why indifference curves for one consumer should not cross each other.
Explanation / Answer
1) The consumer is regarded as rational in economics which means that he will always choose the most preferred alternative from the given alternatives.
Strict preference - when choosing between two set of bundles,the strict preference will strictly choose one bundle say x over another say y.
Weak preference - when choosing between two sets of bundles x and y, x is as at least as preferred as us y.
Indifference- in the given set of bundles x and y, x is exactly as preferred as is y.