Answer to Question #314062 in Microeconomics for rrurema

Question

1.     Do you know the assumptions which underlay the consumer’s preferences? Explain them.

Given the following information on price of Maize flour (MF) 10$, the price of Rice (R) as 15$ and income of consumer 150$ when the consumer needs to maximize his utility function  

Analyze the following graph on consumer behavior, through

a.      Explaining the line/curve A and C.

b.     Explaining what the movement from point D to B means theoretically, express that movement mathematically.

c.      Showing where is the equilibrium of consumer? Explain it.

d.     Finding the value of point F and E.

Answer 1

There are three types of assumptions: completeness, transitivity, and non-satiation.

• Completeness: Completeness assumes that consumers have all the information they need to make an informed decision, both about the product and their own desires.
• Transitivity: Transitivity assumes that if A happens then, B will happen as well.
• Non-Satiation: Non-satiation assumes that if one person has X amount of something, it does not mean they will not want more options.