T1.2 Preferences, Utility and consumer choice

What are the four components of the consistent choice model?

Consumption set, preference ordering, constraint set, and welfare maximisation

What does it mean for preferences to be “rational”?

Preferences are complete and transitive

What is local non-satiation

For any bundle, there’s always a nearby bundle that is strictly preferred

Define monotonicity in preferences

More of every good is at least as good as less

What is convex its in consumer preferences?

Averages (mixture of bundles) are at least as good as extremes

Why are utility functions considered ordinal?

They only reflect rankings, not intensity of preferences

What does MRS represent?

The trade-off rate between goods to maintain the same utility level

Why cant marginal utility be compared across utility functions?

Because utility is ordinal and transforms under strictly increasing functions

What ensures a utility function exists for uncountable sets?

Rational and continuity (Debreu’s result)

What is the economic meaning of marginal benefit (MB)?

MRS of a commodity for income, MB = MU of the good / MU of income