Revealed Preference - Definitions and Theory

Definitions and Theory

Let there be 2 bundles of goods (x1,x2) and (y1,y2) available at price (p1,p2),assuming that the consumer has an income 'm'. It is observed that the consumer buys (x1,x2) bundle of goods. To translate this arithmetically following equation is formulated p1y1+p2y2p1y1+p2y2. From the preceding equation we derive that the consumer prefers bundle of goods (x1,x2) over bundle of goods (y1,y2) or we can say that bundle of goods (x1,x2) is directly revealed preferred to (y1,y2).

Read more about this topic:  Revealed Preference

Famous quotes containing the words definitions and/or theory:

    “What I do not like about our definitions of genius is that there is in them nothing of the day of judgment, nothing of resounding through eternity and nothing of the footsteps of the Almighty.”
    —G.C. (Georg Christoph)

    “There could be no fairer destiny for any physical theory than that it should point the way to a more comprehensive theory in which it lives on as a limiting case.”
    —Albert Einstein (1879–1955)