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Pam 200 slides 3

# Pam 200 slides 3 - PAM 2000 Intermediate Microeconomics A...

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PAM 2000 Intermediate Microeconomics A. Sinan Ünür Consumer Preferences Consumer Preferences Chapter 3

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Chapter 3 PAM 2000 – A. Sinan Ünür Rational Consumer Choice Consumers have preferences over combinations of goods and services available in the market Consumers have a bounded amount of resources to spend Goods and services have positive prices Consumers choose the most preferred combination of goods and services taking as given their budgets
Bundle/Basket Bundle/basket:  A particular combination of two or more goods. Point A  is a bundle of 5 square yards of shelter per week and 7 pounds of  food per week. Point B  is a different combination: 8 pounds of food per week and 3 square  yards of shelter per week.

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Chapter 3 PAM 2000 – A. Sinan Ünür Preferences: Completeness Given any two bundles, say A and B, the consumer can say one of the following: She prefers A to B She prefers B to A She is indifferent between A and B That is, the consumer can actually make a choice
Chapter 3 PAM 2000 – A. Sinan Ünür Preferences: More-is-better Other things being equal, more of a good preferred to less As long as people can freely dispose of goods they don’t want, having more of something cannot make them worse off.

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Chapter 3 PAM 2000 – A. Sinan Ünür Preferences: Transitivity Given any three bundles, A, B, and C, If the consumer prefers A to B And prefers B to C, then, She must prefer A to C Necessary, so you can actually choose something among three alternatives
Chapter 3 PAM 2000 – A. Sinan Ünür Preferences: Convexity Simply put, we assume mixtures of goods are preferable to extremes. You prefer to have one TV set and one stereo to having

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Pam 200 slides 3 - PAM 2000 Intermediate Microeconomics A...

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