Ordinal theory - indifference curve approach, Macroeconomics


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
Lag Length criteria VAR Lag Order Selection Criteria         Endogenous variables: OIL EXCH R RPI LUNEMP GDP

Q. Explain about Household savings? Remember that consumption may refer to observed consumption as well as to demand for consumption. The same is true for 'household savings',

Firms such a Moody's and Standard &Poor's study corporations that issue bonds. They publish "ratings" for the bonds- evaluation of the likelihood of default. Suppose these rating c

If income falls below its potential and the income tax rate is reduced, this will: A. raise the passive deficit but reduce the structural deficit. B. raise both the passive and str

Some manufacturing and agricultural products produced in the Midwest are exported to overseas markets.  US consumers and businesses also purchase many products produced outside the

C=100+0.75Yd How do i calculate marginal propensity to consume?

Consider a hospital that produces output (Q) and has two production inputs, nurse-hours (N) and beds (B). the hospital faces input costs of W N = 15 and W B = 25. Assume the h

1. Consider the following game: a) Does either player have a dominant strategy? b) Does either player have a (pure) prudent strategy? c) Does the game have a saddlepo