1. Chapter 3 Preferences

2. Assumptions about Preferences
Complete--Compare two bundles, A and B. There are three possibilities: A is preferred; B is preferred; they are indifferent
Reflexive--Any bundle is as good as itself, I.e., A>=A. (note: ”>“ represents “is preferred” and “=“ represents “indifferent”.
Transitive-- If A>=B and B>=C, then A>=C.
Strict Convexity (needed only for well-defined preferences)-- If A>=z and B>=z, then a*A+(1-a)*B> z. This assumption is equivalent to a diminishing MRS. The assumption is ad hoc.

3. 03.01

4. No Crossing Between Two Indifferent Curves
X is indifferent to Z (X=Z) and Y is indifferent to Z (Y=Z) [Note: = means “indifferent,” not “equal”]
Hence, X=Y=Z. However, X lies below the steeper indifferent curve, meaning that X is inferior to Y--- a contradiction.

5. 03.02

6. Some Special Preferences
Goods are perfect substitutes: U=ax+by [ex: U($1, $10) or U(yellow pencil, red pencil)]
Goods are perfect complements: U=min[ax, by] [ex: U(coffee, sugar)]
Y is a neutral good: U=x [ex: U(LeftShoe, .) for person only with the left foot; U(anchovies, pepperoni) ]
U(good, bad) [ex: U(apple, durian) ]
Satiated preference
Discrete goods

7. 03.03

8. 03.04

9. 03.05

10. 03.06

11. 03.07

12. 03.08

13. 03.09

14. 03.10

15. MRS
Defined as the rate at which the consumer is willing to substitute one good for the other
It diminishes as more x is consumed if strict convexity holds.

16. 03.11

17. 03.12

18. W. W. Norton & Company Independent and Employee-Owned
This concludes the Norton Media Library Slide Set for Chapter 3 Intermediate Microeconomics 6th Edition by Hal R. Varian