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The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.It analyzes how consumers maximize the desirability of their consumption (as measured by their preferences subject to limitations on their expenditures), by maximizing utility subject to a consumer budget constraint. [1]
A simple example of a preference order over three goods, in which orange is preferred to a banana, but an apple is preferred to an orange. In economics, and in other social sciences, preference refers to an order by which an agent, while in search of an "optimal choice", ranks alternatives based on their respective utility.
In economics, non-convexity refers to violations of the convexity assumptions of elementary economics.Basic economics textbooks concentrate on consumers with convex preferences (that do not prefer extremes to in-between values) and convex budget sets and on producers with convex production sets; for convex models, the predicted economic behavior is well understood.
Local nonsatiation (LNS [2]) is often applied in consumer theory, a branch of microeconomics, as an important property often assumed in theorems and propositions.Consumer theory is a study of how individuals make decisions and spend their money based on their preferences and budget.
Revealed preference theory, pioneered by economist Paul Anthony Samuelson in 1938, [1] [2] is a method of analyzing choices made by individuals, mostly used for comparing the influence of policies [further explanation needed] on consumer behavior. Revealed preference models assume that the preferences of consumers can be revealed by their ...
In economics, an ordinal utility function is a function representing the preferences of an agent on an ordinal scale.Ordinal utility theory claims that it is only meaningful to ask which option is better than the other, but it is meaningless to ask how much better it is or how good it is.
In economics, a cardinal utility expresses not only which of two outcomes is preferred, but also the intensity of preferences, i.e. how much better or worse one outcome is compared to another. [1] In consumer choice theory, economists originally attempted to replace cardinal utility with the apparently weaker concept of ordinal utility.
Consumer preferences have three properties: completeness, transitivity and non-satiation. For a preference to be rational, it must satisfy the axioms of transitivity and Completeness (statistics). The first axiom of transitivity refers to consistency between preferences, such that if x is preferred to y and y is preferred to z, then x has to be ...