Question

Paul Samuelson

Can someone explain his economic idea in a simple way possible and with a real-world example, please? I am struggling :(

- Revealed Preference Theory

- Business Cycle

- Social Welfare Function

Answer 1

REVEALED PREFERENCE THEORY

Paul Samuelson introduced this theory to replace the theory of utility. This says that when having options consumers will select a particular object and this will reveal their preference. And till the time the particular object remains affordable the consumer will keep selecting that always as it is its prefernce.

For ex. A consumer has $10, with this he can buy one of the options:- 3 bananas or 4 apples or 2 oranges. Lets say he bought 2 oranges. This shows that he preferred oranges over the other 2 options. Revealed preference theory says that this choice has revealed the consumers preference and this is going to remain same irrespective of the other options unless the preferred object is no longer in the budget. For ex the consumer will keep choosing oranges even if he will get options like kiwi, pears etc. Till the time oranges become unaffordable.

This theory was criticized because it is not posiible to measure the consumers preference as compared to all the available options, and it is wrong to say if the consumer chose something once he will always choose the same irrespective of options if it falls in his budget.