Lecture 4 indifference curve bullshit

Question 1

Non-Satiation

Answer 1

Non Satiation mean that we assume that more of any one good is, ceteris paribus, preferred to less of that good.

Question 2

Ordinal rankings

Answer 2

Ordinal Ranking means that consumers are able to say which two bundles they prefer (or that they are indifferent between them) but not by how much (e.g. in happiness or utility terms). They might prefer one bundle over the another. In other words, we assume consumers are capable of ordinal but not ‘cardinal’ ranking.

Question 3

Transivity

Answer 3

Means that is a consumer prefers bundle A over bundle B and prefers B over C, then we can infer that they must prefer A over C. This is a requirement of consistency. We assume it holds too in the indifference relationship.

Question 4

Completeness

Answer 4

Which means that the consumer is always able to rank any 2 bundles of goods no matter how similar or different they might be. I.e. If we ask a consumer for their ranking between a and b we assume that they will answer either A is preferred to B or B is preferred to A or that they are indifferent between a and b. We rule out the possibility that they are unable to rank and hence the answer: I don’t know