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Assumption of Convex Preferences

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PPGPortal > Home > Concept Dictionary > A > Assumption of Convex Preferences
 
 
Assumption of Convex Preferences

The assumption that consumers generally prefer "averaged" bundles rather than extremes

(Dwayne Benjamin, PPG 1002)

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The assumption of convex preferences states that if we take two bundles of goods (x1, x2) and (y1, y2) which are on the same indifference curve and create a new bundle which is the weighted average of the two bundles, the new "averaged" bundle will be at least as good as or strictly preferred to the original two bundles. This allows for a convex shaped indifference curve. The assumption of convexity implies a diminishing Marginal Rate of Substitution.

     

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