Answer to Question #231150 in Macroeconomics for Nee

Question

Discuss the three common properties of preference relations and how they impact a person's choice. Use applicable examples based on your own individual experience

Answer 1

Solution:

Preference relations refer to orderings that describe human preferences for one thing over another. It is the subjective individual tastes as measured by the utility of various bundles of products. They allow the consumer to rank utility bundles of goods according to the level of utility derived from them by the consumer.

The three common properties of preference relations include the following:

·        Completeness – This means that when a consumer is making a choice between two different options, the consumer is able to rank them such that, A is preferred to B, or, B is preferred to A, or they are indifferent between the two. For consumers to be able to make a decision when given numerous options, the completeness of preferences must be present.

·        Transitivity – This is a fundamental property which means that if a person selects A over B, and B over C, then that person ought to, or should also select A over C.

·        Monotonic – It simply means the more the better. Preferences are monotonic if a basket with more of at least one good and no less of any good is preferred to the original basket.