Econ100A.Sep11 - Econ 100A - Economic Analysis -...

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Econ 100A - Economic Analysis - Microeconomics Raphaël Giraud 1 University of Franche-Comté (France) 2 Visiting Assistant Professor at Berkeley University 3 ragiraud@berkeley.edu Raphaël Giraud Intermediate Microeconomics
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± ² ³ ´ Menu du jour September 11: Consumer Theory: Describing Tastes and Constraints. Readings: PR3 1 Raphaël Giraud Intermediate Microeconomics
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Consumer Theory Introduction Microeconomic Agents Up to now, we’ve been studying partial equilibrium while taking the demand and supply functions as given, and without knowing how they are derived. We are now going to dig into these functions to understand how they can be derived from the behavior of individuals, in accordance with methodological individualism. The aim is to understand better how these functions vary with the parameters that were considered constant in the previous study: tastes, income, prices of other goods, costs, . . . . To that effect, we will study consumer theory and production theory. Raphaël Giraud Intermediate Microeconomics
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Consumer Theory Introduction Describing Tastes and Constraints Introduction In this chapter we will discuss the answer to the following question: How, his or her tastes, income being given as well as the goods market prices does a consumer choose the quantities of each goods he/she is willing to buy? Answering this questions involves: 1 Understanding and modeling the consumer’s preferences: preferences and utility functions. 2 Understanding and modeling the constraints that bind the consumer’s choice: the budget constraint . 3 Understanding the choice mechanism and its consequences: individual demand functions . Raphaël Giraud Intermediate Microeconomics
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Consumer Theory Introduction Describing Tastes and Constraints Outline 1 Consumer Theory Describing Tastes and Constraints Commodity Bundles Preferences Raphaël Giraud Intermediate Microeconomics
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Consumer Theory Introduction Describing Tastes and Constraints Commodity Bundles As was mentioned in the general introduction, the major step toward understanding the concept of value was to understand that what matters is not the value of such and such commodity in general, but the value of a certain quantity of the commodity. For this reason, consumer tastes are described as the way they react to different lists of quantities of commodities, that are called commodity bundles . Definition (Commodity Bundle) Assume there are L commodities available. A commodity bundle X is a list specifying a certain quantity x ` for each good ` . Raphaël Giraud Intermediate Microeconomics
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Consumer Theory Introduction Describing Tastes and Constraints Commodity Bundles Commodities may be distinguished along several dimensions. Physical Characteristics: taste, color, ˙ ..
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Econ100A.Sep11 - Econ 100A - Economic Analysis -...

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