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

Explain how changes in the quality of health care will influence the demand for care.

The events X and Y are mutually exclusive. Suppose P(X)=.05 and P(Y) =.02. What is the probability of either X or Y occurring? What is not probability of X nor Y happens?

You are developing a sampling protocol whereby you're going to insert a probe into a turbulent flow in a circular conduit of radius R. a. Using a description of a velocity profi

To the right is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Upon what specific assumptions is t

how to relate macro economics theories with current indian economy

critically analyse the ways at which the government of zimbzbwe has put in place to address unequal employment opportunities between men and women

Q. What is national income? What are the different methods of measuring national income? National income is the aggregate money value of the annual flow of final goods and serv

critically analyse the ways at which the govement of zimbabwe has put in place to address unequal employment opportunitiesbetween men andwomen

what is lemda in marginal utility. And how does it affect the consumption