Microeconomics Question from Walter E. Williams:Edit
"What are the four essential property of indifference curves between two goods? Explain the justification for each property."
In class notes, Williams actually listed five (5) "axioms of indifference analysis":
- (1) For all A or B (goods) in some opportunity set, either A is preferred to B, B is preferred to A, or both (indifferent)
- (2) Transitivity - if A is preferred to B and B is preferred to C, then A must be preferred to C
- (3) Rational Choice - if consumer selects A, we assume the selection represents his preference
- (4) Any set having more of one good and no less of any others is preferred (to the one with one less good)
- (5) Indifference curves are convex to the origin
As an alternative, the text Price Theory and Applications (Hirschleifer and Glazer, 5th ed, pp. 66-67) lists "four crucial properties" of indifference curves:
- (1) Negative slope - corresponds to Williams' point number 4 above
- (2) Indifference curves cannot intersect - relates to Williams' point number 2 above
- (3) Coverage of indifference curves - every point in the commodity space is covered, meaning that any basket of goods must lie on some indifference curve
- (4) Indifference curves are convex to the origin - same as Williams' point number 5 above, and H&G's justification is that, while this can not be proved from the postulates of rational choice, "it is based on the well-established empirical principle of diversity in consumption"
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