Axioms - revealed preference theory, Microeconomics


Revealed preference theory is based on the axioms listed below. 

•  Consumer will spend all her income on goods. The consumer equilibrium always remains on the budget line. 

•  For any given price income situation, there corresponds a unique commodity bundle that the consumer chooses. Given the same income and prices, consumer will always choose the same bundle. 

•  For any given bundle, there is always a unique price income situation in which the consumer will be led to purchase that bundle. 

•  Weak axiom of revealed preference: If consumer chooses a bundle q0 in some price income situation (p0, M0) and spurns q1, where q1 is not more expensive than q0 at the prices at which q0 is bought, then q0 is revealed preferred to q1. Then q1 can never be revealed preferred to q0 when q0 is available. If in another price situation, consumer chooses the bundle q1, then q0 is not an available alternative at that price situation. 

•  Demand function is single valued in prices and income.  

Posted Date: 10/26/2012 3:37:55 AM | Location : United States

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