MGEB02H3 Chapter Notes - Chapter 3: Utility, Cardinal Utility, Market Basket
17 Sep 2017
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Document Summary
Consumer behavior is best understood in three distinct steps: Market basket (or bundle) = quantities of one or more goods. Theory of consumer behavior begins with three basic assumptions about people"s preferences for one market basket versus another: Completeness: preferences are assumed to be complete. in other words, consumers can compare and rank all possible baskets. thus, for any two market baskets a and. Chevrolet, then a porsche is also preferred to a chevrolet. transitivity is normally regarded as necessary for consumer consistency. More is better than less: goods are assumed to be desirable i. e. , to be good. = curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction. Indifference maps baskets among which a consumer is indifferent. Indifference curves cannot intersect that more is preferred to less. Violates our assumptions about consumer behavior, contradicts our assumption. Follows directly from our assumption that more of a good is better than less.
