Microeconomics (9th Edition) (Pearson Series in Economics)
Microeconomics (9th Edition) (Pearson Series in Economics)
9th Edition
ISBN: 9780134184241
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Chapter 3, Problem 1RQ
To determine

Significance of basic assumptions about individual preference.

Expert Solution & Answer
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Explanation of Solution

There are four main assumptions about individual preference. They are as follows:

  1. (1) Preferences are complete: This assumption explains that the consumers are able to compare and rank the goods and services.
  2. (2) Preferences are transitive: The second assumption explains that the preferences of consumers are transitive or constant. In other words, if a consumer prefers apple over orange and orange over banana, then he would prefer apple over banana.
  3. (3) More is preferred to less: The third assumption explains that the consumers prefer to have all the goods in more quantity.
  4. (4) Diminishing marginal rate of substitution: The forth assumption explains that the consumer can give up fewer amount of commodity in order to obtain more of other goods.

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