econ 310 spring 2016 slides handout - lecture 3 PREFERENCES, UTILITY and UTILITY MAXIMIZATION - Economics 310 3 Preferences Utility and Utility

Econ 310 spring 2016 slides handout - lecture 3 PREFERENCES, UTILITY and UTILITY MAXIMIZATION

This preview shows page 1 - 5 out of 19 pages.

Economics 310 3. Preferences, Utility and Utility Maximization Stephen Morris Spring 2016 February 17, 2016
Some Basic Issues in Consumer Choice I Who chooses? I individual I household I What are they choosing? I quantities of goods and services I labor supply (leisure demand) °income ±endogenous" I intertemporal choice ( borrowing or saving) I risk choices ( portfolio choice, risk choices, purchase of insurance, gambling) February 17, 2016
Some Basic Issues in Consumer Choice I What choices are possible? I Quantities taken to be continuous variables unless explicitly stated otherwise (rarely) I What constraints on choice exist? I budget line I nonlinear schedule because of quantity discounts or premia I other constraints like rationing... I Over what time scale are we modelling choices? I If too short, whims and errors may dominate I If too long, available goods, tastes may change February 17, 2016
Methodology I Assume "methodological individualism", "rational choice" I "Rationality" here means: I internally consistent preferences; I maximization of these subject to constraints I Preferences need not be sel²sh, purely money-oriented, short-run, conformist . . . I Maximization can be ±as if" I Look for explanation of average over people, time; judge success of theory by empirical evidence I Start simple and gradually build more complex models February 17, 2016

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture