Microeconomics 3

Description of how consumers allocate incomes among different goods and

services to maximize their well-being.

1. Consumer preferences

2. Budget constraints

3. Consumer choices

List with specific quantities

of one or more goods.

1. 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 B, a consumer will prefer A to B, will prefer B to A, or will be indifferent between the two. By indifferent we mean that a person will be equally satisfied with either basket.

2. Transitivity: Preferences are transitive. Transitivity means that if a consumer prefers basket A to basket B and basket B to basket C, then the consumer also prefers A to C. Transitivity is normally regarded as necessary for consumer consistency.

3. More is better than less: Goods are assumed to be

desirable—i.e., to be good. Consequently, consumers always

prefer more of any good to less. In addition, consumers are

never satisfied or satiated; more is always better, even if just a

little better.