Ordinal theory - indifference curve approach, Macroeconomics

ORDINAL THEORY:

INDIFFERENCE CURVE APPROACH In indifference curve approach consumer is assumed to be rational, so that consumer's objective is to maximise her utility by choosing a commodity bundle among all other available commodity bundles (under budget constraint) where total utility ('U') depends on quantity consumption given her taste and preferences. Therefore, in a two-commodity world (say x1  and  x2) utility function is given by U = U (x1,x2) and it depends on taste and preferences of the consumer, which is specified by axioms given below:   

Axiom of reflexiveness: Consumer's choice is reflexive. Implication: Weak preference relation is denoted by 'R'. Suppose there are two goods x1 and x2 and suppose x1 is weakly preferred to x2 i.e., x1Rx2 which implies that either x1 is strictly preferred over x2 (it is denoted by x1Px2) or x1 is indifference to x2 (it is denoted by x1Ix2), where 'P' and 'I' implies strict preference relation and indifference respectively. The set constituted by all commodity bundles or vector is known as commodity set (X). Any one commodity bundle is denoted by 'x' is weakly preferred (i.e., either strictly preferred or indifferent) over any other commodity bundle (i.e., in respect to 'x'). Therefore, we have xRx. Clearly, any one commodity bundle may be indifferent to another commodity bundle i.e., there is a possibility of indifference or same level of utility between the commodity bundles. None of the commodity bundles are not preferred i.e., consumer can choose any commodity bundle. So choice set of this consumer is specified by the commodity set 'X'.   

Posted Date: 10/26/2012 2:27:42 AM | Location : United States







Related Discussions:- Ordinal theory - indifference curve approach, Assignment Help, Ask Question on Ordinal theory - indifference curve approach, Get Answer, Expert's Help, Ordinal theory - indifference curve approach Discussions

Write discussion on Ordinal theory - indifference curve approach
Your posts are moderated
Related Questions
Regression Analysis This is a statistical tool which is used to discern the relationship among a dependent variable as like sales to one or more independent variables like adve

In a regression analysis, three independent variables are used in the equation based on a sample of forty observations. What are the degrees of freedom associated with the F-statis

An experiment is explained by an exponential random variable with mean ? and x1 and x2. A proposed test of the hypothesis ?=2 next to the alternative ?=½ uses the critical region {

What are the important aspects in tracking the macro-economy? Important aspects in tracking the macro-economy: a. How economists utilizes aggregate measures to track the pre

a) Get the latest data for each of the following variables for France in 2011: 1. Nominal GDP 2. Real GDP (Y) 3. Consumption (C) 4. Investment (I) 5. Government purchases (G)

Let a macroeconomic model be of the following form: C = a + bY D                             a = 10 T = T 0                                   b = 4/5 G = G 0

Aggregate supply Remember that labor demand provides us profit-maximizing quantity of L for a given real wage. If W/P is given (as it's in cross model), we can find profit-maxi

Cost Reduction Positive measures to effect a lowering of costs include:  reducing national insurance contributions (an  ad valorem  tax on employing labor);

Question 1: Consider a closed economy with no government sector in which consumption (C) is related to income (Y) by the equation: C = A + bY (a) What is the marginal pr

THE AD CURVE SHIFT TO THE LEFT WHEN