1) One's value scale is totally (linearly) ordered:
|
i) |
Transitive; |
p \(\leq \) q and q \(\leq \) r imply p \(\leq \) r |
|
ii) |
Reflexive; |
p \(\leq \) p |
| |
iii) |
Anti-Symmetric; |
p \(\leq \) q and q \(\leq \) p imply p = q |
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iv) |
Total; |
p \(\leq \) q or q \(\leq \) p |
2) Marginal (diminishing) utility, u(s), is such that:
|
i) |
It is independent of first-unit demand. |
|
ii) |
It is negative monotonic; that is, u'(s) < 0. |
| |
iii) |
The integral of u(s) from zero to infinity is finite. |
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3) First-unit demand conforms to proportionate effect:
|
i) |
Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value. |
|
ii) |
In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value. |
| |
iii) |
The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance. |
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