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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4

We assume that when comparing any three distinct bundles, *A*, *B*, and *C*, if *A* is preferred to *B*, and simultaneously *B* is preferred to *C*, then it must be true that *A* is preferred to *C*. This assumption is referred to as the assumption of transitive preferences *,* and it is assumed to hold for indifference as well as for strict preference.

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**3. UTILITY THEORY: MODELING PREFERENCES AND TASTES**

that about his two children. In effect, the father neither prefers one to the other nor is, in any meaningful sense, indifferent between the two. The assumption of complete preferences cannot accommodate such a response. Second, <span>we assume that when comparing any three distinct bundles, A, B, and C, if A is preferred to B, and simultaneously B is preferred to C, then it must be true that A is preferred to C. This assumption is referred to as the assumption of transitive preferences , and it is assumed to hold for indifference as well as for strict preference. This is a somewhat stronger assumption because it is essentially an assumption of rationality. We would say that if a consumer prefers a skiing holiday to a diving holiday and a diving

that about his two children. In effect, the father neither prefers one to the other nor is, in any meaningful sense, indifferent between the two. The assumption of complete preferences cannot accommodate such a response. Second, <span>we assume that when comparing any three distinct bundles, A, B, and C, if A is preferred to B, and simultaneously B is preferred to C, then it must be true that A is preferred to C. This assumption is referred to as the assumption of transitive preferences , and it is assumed to hold for indifference as well as for strict preference. This is a somewhat stronger assumption because it is essentially an assumption of rationality. We would say that if a consumer prefers a skiing holiday to a diving holiday and a diving

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