Question

Explain four basic properties of a consumer’s preference ordering and their ramifications for a consumer’s indifference curves.

Short answer

The four important properties for the consumer’s preference are –

• Product completeness,
• High willingness to buy,
• Marginal substitution limit,
• Transitivity.

Step-by-step solution

Introduction

Consumer’s preference signifies consumers’ behavior while selecting goods. In equilibrium, consumers adjust their purchasing behavior so that the ratio of prices they pay just equals their marginal rate of substitution.

Basic properties

The four basic properties of consumer’s preference ordering and their ramifications for a consumer’s indifference curves are:

1. Completeness – Being indifferent with all the bundles, the consumer should be capable to express some particular preference.

2. More is better - The consumer will see the product, as a good or bad product, with different considerations.

3. Diminishing Rate of Marginal Substitution - As a consumer demands Good , the more he or she is willing to give up Good to purchase another unit of Good , as a conclusion Good will decrease.

4. Transitivity - This property never gives the people the chance to choose between different goods. Preferences can be transitive if they are internally consistent.