Consumer Preferences and Choices

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Questions and Answers

If a consumer is indifferent between two consumption bundles, which symbol is used to represent this?

⪰

∼ (correct)

≻

When using the symbol ≻ between two consumption bundles, what does it indicate?

Strict preference of one bundle over the other (correct)

Weak preference of one bundle over the other

Indifference between the two bundles

None of the above

What does it mean when X ⪰ Y in consumer preference theory?

X is strictly preferred over Y

X is weakly preferred over Y (correct)

X is not preferred over Y

There is indifference between X and Y

If a consumer is indifferent between two bundles of goods, what can be concluded about their preferences?

They find both bundles equally satisfying Signup and view all the answers

In consumer preference theory, what can be deduced if X ⪰ Y and Y ⪰ Z?

X ~ Z Signup and view all the answers

Why are the relations of strict preference, weak preference, and indifference considered related in consumer theory?

Because preferences are transitive and related Signup and view all the answers

Which approach focuses on ranking preferences rather than measuring them quantitatively?

Ordinal utility approach Signup and view all the answers

What do indifference curves represent?

Consumer preferences Signup and view all the answers

Which of the following is a property of indifference curves?

Indifference curves never touch the horizontal or vertical axes Signup and view all the answers

How do consumers make choices according to consumer theory?

By comparing total utility gained from consuming different goods Signup and view all the answers

What is the main focus of consumer preferences in consumer theory?

Analyzing how consumers derive satisfaction from goods and services Signup and view all the answers

Which concept helps determine the combination of goods that provide equal satisfaction to a consumer?

Indifference curve mapping Signup and view all the answers

Which theory is also known as the indifference curve approach?

Ordinal utility theory Signup and view all the answers

What is the assumption about a consumer's total utility in relation to the items consumed from the consumption basket?

Total utility is measured by the amount of items consumed Signup and view all the answers

What property is known as the axioms of transitivity in consumer preferences?

Consistency in preferences Signup and view all the answers

In indifference curves, what do different combinations of goods along a curve represent?

Different levels of satisfaction Signup and view all the answers

What does an indifference map show?

Different levels of satisfaction from various goods Signup and view all the answers

What does the negative slope of indifference curves indicate?

Decreasing utility for both goods Signup and view all the answers

Study Notes

Consumer Preferences

When given two consumption bundles, a consumer either strictly prefers one over the other or is indifferent between the two.
Preference is determined by observing the consumer's choice between two bundles; if they always choose X over Y, it implies they strictly prefer X to Y, denoted as X ≻ Y.
Indifference between two bundles is denoted as X ~ Y, meaning the consumer derives the same level of satisfaction from both.

Notations and Relations

Weak preference is denoted as X ⪰ Y, implying the consumer prefers X to Y or is indifferent between the two.
The relations of strict preference, weak preference, and indifference are interconnected; if X ⪰ Y and Y ⪰ X, then X ~Y.

Theory of Consumer Behaviour

Consumer theory is based on the premise that we can infer what people like from the choices they make.
Consumer behaviour can be understood in three steps: examining consumer preferences, considering budget constraints, and determining consumer choice.

Objectives

Explain consumer preferences and utility
Differentiate between cardinal and ordinal utility approach
Define indifference curve and discuss its properties
Derive and explain the budget line
Describe the equilibrium condition of a consumer

Consumer Preferences and Utility

A consumer makes choices by comparing bundles of goods, with the rate of substitution between goods diminishing as consumption increases.
Assumptions of consumer preferences include:
- Total utility measured by the quantity of goods consumed
- Consistency of consumer preferences (axioms of transitivity)
The ordinal utility approach is explained using indifference curves.

Indifference Set, Curve, and Map

An indifference set/schedule is a combination of goods providing the same level of satisfaction to the consumer.
An indifference curve is a graphical representation of the indifference set, showing different combinations of two goods yielding the same utility.
A set of indifference curves is called an indifference map.

Properties of Indifference Curves

Indifference curves have a negative slope (downward sloping to the right).

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Description

Learn about consumer preferences and choices by understanding how consumers decide which consumption bundle they prefer based on their behavior in choice situations. Explore the concept of consumer preference using symbols like ≻ to indicate a preferred choice.