L10 - Economics 101:Principles of Microeconomics Professor...

Info icon This preview shows pages 1–7. Sign up to view the full content.

1 Economics 101:Principles of  Microeconomics Professor Jo Hertel Lecture 10: Consumer choice Indifference curves & utility Budget lines The optimal consumption decision Optimal consumption when income or prices change
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

2 Consumer choice In this section, we look at optimal consumption decisions in a larger context: deciding how to spend your income on all available goods. connect the isolated buying decisions we looked at before Choices depend on preferences, prices and income How do we model preferences? A thought experiment
Image of page 2
3 Good X Good Y Modeling preferences: indifference  curves Preferences about any two goods are expressed with a system of indifference curves such that: the consumer is indifferent between any 2 points on the same IDC He prefers bundles on a higher IDC q’ Y q Y q’ X q X the consumer is indifferent between these two bundles An indifference curve is a line containing all bundles the consumer likes equally Definition Definition Definition Definition Definition Definition Definition
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

4 HEPF  – 4 facts about IDCs to remember Indifference curves (are): H igher is better Everywhere – every bundle has an IDC through it Parallel – a consumer’s IDCs never, ever cross Fixed – a consumer’s IDCs don’t change Good X Good Y q’ X q X
Image of page 4
5 Modeling preferences: indifference curves We assume: more of a good is better Then: IDCs are downward sloping We express ‘we like these bundles better’ with an arbitrary scale we call utility: “Bundle A has higher utility than B” = “I like A better than B” Good X Good Y U 1 = 100 U 2 = 400 U 3 = 700 U 4 = 800 We like a bundle better that has a higher utility level and vice versa – all bundles on 1 IDC have same utility!
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

6 Indifference curves of regular goods Good X Good Y We assume: more is
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern