perloff_0321374584_IM_Part1_C04

perloff_0321374584_IM_Part1_C04 - Chapter 4 Consumer Choice...

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Chapter 4 Consumer Choice ± Chapter Outline 4.1 Preferences Properties of Consumer Preferences Preference Maps 4.2 Utility Utility Function Ordinal Preference Utility and Indifference Curves Utility and Marginal Utility Utility and Marginal Rates of Substitution 4.3 Budget Constraint Slope of the Budget Constraint Purchasing Fractional Quantities Effect of a Change in Price on Consumption Effect of a Change in Income on Consumption 4.4 Consumer’s Constrained Choice The Consumer’s Optimum Bundle Optimal Bundles Are on Convex Sections of Indifference Curves Buy Where More Is Better Food Stamps ± Teaching Tips The material in this chapter represents a challenge to students for a number of reasons. Most will not have learned constrained optimization before. Also, utility analysis may seem quite abstract to them. Finally, if you are using calculus, this is the point where the calculus techniques go beyond the methods they are likely to have learned in their calculus prerequisite. To overcome these stumbling blocks, you may want to devote one class to presenting and discussing the technical points of utility theory and budget lines using one or two running examples, and another class to applications. Whether you decide to present applications as you go, or after presenting the technical material, I find that this is one area where the students have to see the theory applied in order for it to make sense. You might also consider breaking the class into small groups to work on problems that test their understanding (additional problems are provided below). This way, you can migrate among the groups to get a better idea of how many are struggling and who needs help. The methods presented in this chapter will be needed in Chapter 5 for the derivation of demand curves. If they are not confident with the material in this chapter, they are almost certain to struggle not only in Chapter 5, but also when it comes to production and cost, since the methodology there is similar. The cross-chapter analysis that follows Chapter 5 in the text should help their ability to apply this material.
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24 Part 1 Teaching Aids When discussing the marginal rate of substitution, note that in this text, MRS is left as a negative number ( MRS = X / Y , which, of course, is negative, rather than MRS = X / Y as in some texts). When presenting the MRS , it is worth the time spent to try to get the class to think hard about the special cases of perfect complements and substitutes. Not only does it help them with commodities that fall into this category, but it also helps them to better understand the more typical case of convexity. The class should see that the notion of a measurable util is nonsense and will find the model more believable given that only ordinal measurability is needed. Section 4.3 on budget lines should not require much class time, though it is worth putting an equation and graph on the board and briefly discussing how parameter changes affect the constraint. For Section 4.4, Constrained Choice, the technical portion of the material should come fairly easily if the
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This note was uploaded on 04/16/2008 for the course MICROECONO ECON W3211 taught by Professor Dutta during the Spring '08 term at Columbia.

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perloff_0321374584_IM_Part1_C04 - Chapter 4 Consumer Choice...

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