The theory of revealed preference allows us to use information about consumer choices to inter how the consumer must rank bundles if he is maximizing utility with budget constraints. Alternatively, the revealed preference model explains that how the consumer spends his income with given prices of different commodities. The change in price allows consumer to buy of more or less [...]
The below mentioned article provides short notes on Choice of Revealed Preference. Prof. Samuelson’s theory of demand is based on the revealed preference axiom or hypothesis which states that choice reveals preference. Keeping this fact into view, a consumer buys a combination of two goods either because he likes this combination in relation to others or this is cheaper than [...]
The following points highlight the eight major defects of the revealed preference theory. The defects are: 1. Neglects Indifference 2. Not Possible to Separate Substitution Effect 3. Excludes Giffen Paradox 4. Consumer does not choose only one Combination 5. Choice does not reveal Preference 6. Fails to derive Market Demand Curve 7. Not Valid for Game Theory 8. Fails in [...]