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).

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