and disposable income-in plain English, it gives us information about how much a
ID: 1136371 • Letter: A
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and disposable income-in plain English, it gives us information about how much a consumer can afford (based on disposable income) and also about the opportunity cost of making decisions on spending (based on relative prices). The budget offers a wide range of feasible options, infinite in fact. Economists use the concept of consumer preferences to identify the best allocation of the infinite number of feasible allocations. To do it, we think a ordinal preferences of consumers when they rank different feasible bundles of goods and services. bout the 10. What are the main assumptions used by economists to rank preferences? Explain each one. (15 points) 11. What defines a well-defined set of preferences? Explain and draw. (20 points) 12. Explain strict, weak and indifferent relations between allocations. (5 points) 13. Define the marginal rate of substitution in the context of the example of Section (phone use and everything else). Draw it. (10 points)Explanation / Answer
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10) The assumptions to rank preferences are
11) When the assumption of Completeness, Monotonicity and rationality are satisfied then such preferences are known as well- behaved preferences. They are represented by the convex shaped indifference curves.
12) Suppose there are two Commodity bundles namely A and B. Then if an individual is better-off with A then B or strictly prefers A to B then there is strict relation.
When individual prefers bundle A and B equally then there is an indifferent relation.
Weak relation implies that bundle A is at least as good as B.
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