Chapter 2 Econ Beha

• Desires are effectively unlimited
• Resources are scarce
People possess rational preferences

tradeoffs

A systematic method of comparison between objects.
The job of any relation is to describe some relationship between two or more objects

a relation that dictates how you value one object relative to another

weighs more than

weighs at least as much as

• ”is at least as good as.”
• “is as good or better than.”

an apple is at least as good as a pear

set of objects we can compare using a relation
• The elements in the Periodic Table: {Yellow; Purple; Green; Blue}

for all objects X and Y in a choice set, X R Y or Y R X (or both). Basically, the relation must be able to compare all objects in the choice set to be complete.

A relation R is transitive if, whenever X R Y and
Y R Z, then it is true that X R Z
• X R Y and Y R Z → X R Z

• “is better than.”
• Occurs if X > with the underscore Y but it is not true that Y > with the underscore X

• “is as good as.”
• Occurs if X > with the underscore Y and Y > with the underscore X

the relation is complete and transitive

People possess rational preferences, which means each person’s weak preference relation is both complete and transitive. This is an axiom of the theory of preferences, meaning it’s assumed to be true

X R X

when X R Y, it must
be true that Y R X

X~Y, or X > with the underscore Y, and Y > with the underscore X

STRICT preferences

NO, it's not rational

absolute value of the slope of an indifference curve

Each unit of consumption provides decreasing marginal utility than the previous unit. Indifference curves are generally convex (bowed in), which reflects this.