Assumption of Convex Preferences
The assumption of convex preferences is the assumption that consumers generally prefer “averaged” bundles rather than extremes and implies a diminishing marginal rate of substitution.
As noted in WikiBooks (reference below):
- Convex preferences imply diminishing marginal rates of substitution. For any two goods, increasingly large amounts of one good are required to compensate for marginal losses of the other
- Convex preferences may be interpreted as a desire for diversification in consumption
Atlas topic, subject, and course
WikiBooks, Advanced Microeconomics – Preference Relations, at https://en.wikibooks.org/wiki/Advanced_Microeconomics/Preference_Relations#Convexity, accessed 12 May 2016.
Page created by: Ian Clark, last modified 18 May 2016.