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 never comes a point where a theory can be said to be true. The most that one can claim for any theory is that it has shared the successes of all its rivals and that it has passed at least one test which they have failed.”
    —A.J. (Alfred Jules)