Microeconomics
Microeconomics studies the decisions of individual economic agents such as households and firms, as well as the mechanisms through which prices and resources are allocated in markets. WIIS provides systematic learning materials on modern microeconomic theory, covering topics such as demand and supply theory, consumer theory, producer theory, market equilibrium, surplus analysis, market failures, and general equilibrium theory.
Fields of Microeconomics
Consumer theory is a fundamental area of microeconomics that analyzes how consumers choose goods and services under limited income. Through basic concepts such as preferences, utility, budget constraints, indifference curves, and demand functions, it provides a systematic understanding of the mechanisms underlying rational decision-making.
New Materials
Preferences are said to satisfy homotheticity, or to be homothetic, if, whenever any two indifferent consumption vectors are chosen, the consumption vectors obtained by changing the quantities of all goods in the same proportion are also indifferent. Preferences represented by a utility function that is homogeneous satisfy homotheticity.
Preferences are said to satisfy convexity if, whenever any two consumption vectors \(y\) and \(z\) that are at least as desirable as a consumption vector \(x\) are chosen, every consumption vector obtained by mixing \(y\) and \(z\) in any proportion is also guaranteed to be at least as desirable as \(x\). Preferences satisfying convexity can be characterized by quasi-concave utility functions.
A consumption vector that is at least as desirable as every other consumption vector is called a satiation point. A preference relation satisfies nonsatiation or local nonsatiation if there is no satiation point in the consumption set.
A preference relation satisfies monotonicity if the consumer prefers to consume more of every good. When there exists a utility function representing the preference relation, the preference relation is monotonic if and only if the utility function is monotonically increasing.
A preference relation is said to satisfy continuity if, for every consumption vector, both the strict upper contour set and the strict lower contour set are open sets in the consumption set. Under the continuity assumption, the consumer's preferences are guaranteed to vary continuously. Moreover, preferences represented by a continuous utility function satisfy continuity.
Completeness and transitivity may appear to be natural and reasonable assumptions. In practice, however, there can be various situations in which consumers' preferences fail to be rational. This article examines situations in which consumer preferences fail to satisfy rationality, including the Condorcet paradox and framing effects.