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* * Indifference Curves Exhibiting Satiation x2 x1 Better Better Better Satiation(bliss)point * * Indifference Curves Exhibiting Satiation x2 x1 Better Better Better Satiation(bliss)point * * Indifference Curves for Discrete Commodities A commodity is infinitely divisible if it can be acquired in any quantity; e.g. water or cheese. A commodity is discrete if it comes in unit lumps of 1, 2, 3, … and so on; e.g. aircraft, ships and refrigerators. * * Indifference Curves for Discrete Commodities Suppose commodity 2 is an infinitely divisible good (gasoline) while commodity 1 is a discrete good (car). What do indifference “curves” look like? * * Indifference Curves With a Discrete Good Gas-oline Car 0 1 2 3 4 Indifference “curves”are collections ofdiscrete points. * * Well-Behaved Preferences A preference relation is “well-behaved” if it is Monotonic (单调) and convex (凸的). Monotonicity: More of any commodity is always preferred (i.e. no satiation and every commodity is a good). Definition: x≥y, and x≠y imply x?y. （”Strongly monotone” in MWG） * * Well-Behaved Preferences Convexity: Mixtures of bundles are (at least weakly) preferred to the bundles themselves. E.g., the 50-50 mixture of the bundles x and y is z = (0.5)x + (0.5)y. (Assume x~y)z is at least as preferred as x or y. Definition: If y,z?WP(x), ?? ? [0,1], we have ? y+(1-?) z ?WP(x). * * Well-Behaved Preferences -- Convexity. x z y * * Well-Behaved Preferences —— Strictly Convex Strictly Convex: Preferences are strictly convex when all mixtures z are strictly preferred to their component bundles x and y. (Assume x～y, x≠y) Definition: If y,z?WP(x), and y≠z, ?? ? (0,1), we have ? y+(1-?) z ?SP(x). * * Well-Behaved Preferences —— Strictly Convex x2 y2 x1 y1 x y z =(tx1+(1-t)y1, tx2+(1-t)y2) is strictly preferred to x and y for all 0t1. (Assume x～y, x≠y) * * Non-Convex Preferences x2 y2 x1 y1 z Better The mixture zis less preferred than x or y. * * More Non-Convex Preferences x2 y2 x1 y