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Price Theory (W1: PREFERENCES (Social choice (Majority voting (A policy…

- - - - A decision-maker’s preferences are rational if they are complete and transitive
        
        If a decision-maker’s preferences are not rational, she/he may encounter a situation in which she/he cannot make a choice from amongst the available alternatives.
        
        A decision-maker’s preferences are complete if she/he can rank every pair of alternatives
        
        A>B
        
        B>A
        
        A~B
        
        The inability to rank two alternatives is not the same as being indifferent between the two alternatives
        
        A decision-maker’s preferences are transitive if the rankings are consistent
        
        If A > B, or B > C then A > C
        
        If a decision-maker’s preferences are not transitive, then there must exist cycles within the preferences
        
        Using preferences to order alternatives
        
        b>c; b>a; c>a
        
        B is the most-preferred alternative,and A is the least-preferred.
        
        :arrow_right: If preferences are rational, then the alternatives can be ordered from most-preferred (best), to least-preferred (worst).
        
        If preferences are not complete and transitive, then it is not possible to order the alternatives.
        
        A>B,B>C and A∼C
        
        :arrow_right: the alternatives cannot be ordered
  - - - If a society is equitable, then economic wellbeing is evenly distributed amongst its citizens.
      - If a society is efficient, then it is maximising the production of goods and services given its scarce resources
      - Policies that increase equity tend to reduce economic efficiency.
        
        By redistributing income from rich to poor, they typically reduce the incentive for hard work.
    - - The individual’s preferences are rational
      - The individual has a single, most-preferred policy
      - If two alternative policies lie on the same side of the most-preferred policy, the individual prefers the policy closest to the most-preferred policy
    - - = Preferences over policy alternatives that affect society as a whole; constructed by aggregating the preferences of the individuals within society
      - Social preferences are not an innate characteristic of a society. Rather, they are a product of the method used to aggregate individual preferences
    - - Policy A defeats policy B in majority voting if more citizens prefer A over B
      - Policy A is socially preferred to policy B, if A defeats B in majority voting
      - There is social indifference between policies A and B, if A and B are tied in majority voting
      - A policy that defeats every other policy in majority voting is called the Condorcet winner.
        
        Condorcet winner is the socially most-preferred policy.
    - - The social preferences are complete
      - The social preferences have the Pareto property: If every individual in society prefers policy A over policy B, then A is socially preferred to B
      - The social preferences give equal weight to every individual in society
      - The method for generating the social preferences is not biased towards a particular alternative.
    - - = when all individuals in society have single peaked preferences over policy alternatives, the Condercet winner will be the most-preferred policy of the median voter.
      - Implications
        
        helps explain why competing political parties, with different ideologies, often propose very similar policies.
        
        help explain why people who have a strong preference for either equity or efficiency, tend to feel marginalised by political debates.
  - - - = A description of how a decision-maker would rank (compare the desirability of ) any two alternatives, assuming the alternatives are available to the decision-maker at no cost.
    - - = The preferences a decision-maker reveals through the choices she/he makes
    - - The preference a decision-maker reports when asked about real situations they might encounter
  - - - Even though each individual’s preferences are rational
        
        The social preferences produced through majority voting are not transitive (they contain a cycle)
    - - = in general, the only method for constructing social preferences that are rational, have the Pareto property, and are independent of irrelevant alternatives, is dictatorial
      - A dictatorial mechanism selects one individual in society, and dictates that social preferences match her/his preferences. Any individual selected in this way is called a dictator
      - Implications
        
        The theorem shows us that any form of collective decision-making is unlikely to have the coherence of individual decision-making.
        
        It is common for us to treat firms, governments and nations, as individual decision-makers
- - - - Consumption basket
        
        = A combination of goods and services that an individual might consume.
      - More is better
        
        = An assumption that having more of a good is always better for a consumer.
        
        = monotonicity
  - - - = A ranking that indicates whether a consumer prefers one basket to another, but does notcontain quantitative information about the intensity of that preference.
      - Rational preferences produce an ordinal ranking of alternatives.
    - - A quantitative measure of the intensity of a preference for one basket over another
      - A consumer’s cardinal ranking of alternatives helps us to understanding the tradeoffs she/he faces