Title: Reflecting on Consumer Preferences
Question:
Randy likes baseball more than football, football more than basketball, and basketball more than baseball. Which assumption about consumer preferences does this violate?
a) more is better
b) transitivity
c) completeness and rankability
Answer:
This violates the transitivity assumption of consumer preferences. Transitivity requires that if a consumer prefers option A to option B, and option B to option C, then the consumer should prefer option A to option C. However, in this scenario, Randy's preferences are not transitive since he prefers baseball to basketball, basketball to football, and football to baseball, leading to a cycle of preferences that violates transitivity.
The more-is-better assumption implies that a consumer always prefers more of a good to less. Completeness and rankability assume that a consumer can rank all possible alternatives to determine their most preferred option. The assumption that the more a consumer has of a particular good, the less she is willing to give up of something else to get even more of that good is known as the diminishing marginal rate of substitution, and it is not violated in this scenario.
Further Explanation:
In economics, understanding consumer preferences is crucial in determining consumer behavior and decision-making processes. The concept of transitivity in consumer preferences states that if a consumer prefers Option A to Option B and Option B to Option C, then the consumer should also prefer Option A to Option C.
However, Randy's preferences for baseball, football, and basketball do not follow this transitive pattern. This creates a scenario where consumer preferences are not consistent and violate the transitivity assumption.
On the other hand, the more-is-better assumption suggests that consumers always prefer more of a good to less. Completeness and rankability imply that consumers can effectively rank their preferences to determine their most favored option.
While Randy's preferences may not align with transitivity, they do not contradict the assumptions of more is better, completeness, and rankability. Understanding these fundamental concepts helps economists analyze and predict consumer choices in various market scenarios.