Study Notes from Last Weekend

Page 62 to 67 of the SG, Chapter 2:
2. Rationality - This is a neo-classical economic concept (modern day vernacular would be Optimization or Utility), in a nutshell means Theory of Individual Behaviour and Motivation (Supply & Demand), so we can say this is a Micro Economic Concept, so for those of you not reading the main text, just read the chapter in other texts that talk about individual/household choices.

The word CONSTRAINT, once again shows up here, remember it's a fancy way of saying "LIMIT" in Economics. That means we could only (given there are 2 products) produce so many combinations of salads or pastas. IF it's our allowance/paycheck, then we can only buy so many combinations of pizza or sushi or pizza and beer :)

Rational in Economics term does not mean "NORMAL" and irrational in Economics does not mean "NOT NORMAL." In Economics, it just means we're not producing/spending at a point on the graph (Irrational) or we are producing/spending at a point on the graph (rational).

Page 63: Here the ability to produce increased, this can be because the wife hit him in the head or we just learned how to make salads & pasta faster (technological efficiency/improvement). When it comes to the pizza/sushi, pizza/beer combo, then it would mean we won the lottery, got a raise or changed jobs and got a bigger paycheck. So our individual rationality (the graph/curve) would change (see page 64 of the SG). When you become confused about this graph, just go back to the PPF, when production is not occurring at a point on the line of the graph, then you're not at maximum utilitzation, and if you're not at the point of the line of the individual rationality graph then you're being irrational.

Please refer to page 63: Inconsistency - This in economics term is not when an athlete has a great game one day and tanks it the next. This refers to our changes in taste or preferences :)

Page 65 - Preferences - This is to measure ranking of one product over another, not quantifying her satisfaction/pleasure. To express:

A > B = A is preferred to B
A ~ B = indifferent between A & B

Let's clear the misunderstanding of the word indifference here. It does not necessarily mean that you're indifferent (in the dictionary sense), it would mean that you don't have a preference of one item over another, or you like both equally the same.

e.g.
iPhone > all other cell phones = this means I prefer the iPhone over all other cell phones (unfortunately it's unavailable in South Korea)

Brand A Cell Phone ~ Brand B Cell Phone = I have no preference over any other brands of cell phones.

Let's rank this:
iPhone > Brand A Cell ~ Brand B Cell

I prefer the iPhone over Brand A Cell Phones & Brand B Cell Phones, but am indifferent to Brand A Cell between Brand B Cell.

Hope this was helpful.

One final note, only real numbers can be expressed here (good news for us at least mathematically)