Consumer Theory Scheme

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Consumer Theory Scheme par Mind Map: Consumer Theory Scheme

1. Topic 1.Preferences

1.1. Relationships of preference

1.1.1. Used in an ordinal way

1.2. Axioms of preferences

1.2.1. A1.Completeness Implication1: For every bundle there is at least one indifference curve Implication 2: every bundle can be ordered.

1.2.2. A2. Transitivity Implication 1: Indifference curves can’t be cut Implication 2: Indifference curve don’t cycle

1.2.3. A3.Monotonicity Implication 1: Indifference curves don’t have area Implication 2: indifference curves are decreasing Implication 3: Bundles with indifference curves more far from the origin are prefferred Implication 4: In the consumer equilibrium, the consumer spends all his rent.

1.2.4. A4. Continuity Implication 1. If transitivity and completeness are satisfied, continuity garanties that solutions for the consumer equilibrium will be obtained.

1.2.5. A5. Convexity Implication 1. Average is prefferred to extremes. The consumer prefers to consume equilibriate quantities of goods than extreme combinations of the goods

1.3. Utility functions

1.3.1. Represented by indifference curve maps Indifference curve slope represents: RMS= umgx/umgy

1.3.2. Types of utility functions Cobb Douglas Perfect substitutes Perfect complemetns Quasilinear Bads Neutral goods Saciety Concave preferences Lexicographic Pareto

2. Topic 2. Budget restriction