lec2 - 2010-03-04 Develop a Model of Consumer Behavior •...

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2010-03-04 1 Consumer Theory Econ 201 Beomsoo Kim Korea University Develop a Model of Consumer Behavior Step 1: Preferences/Tastes What is desirable Step 2: Budget Constraint What is affordable Step 3: Optimal Bundle What is chosen Two Goods Indifference Curve: Nonsatiation (I) More of a good is always better Beanie Babies B E More preferred bundles (Principle of Nonsatiation) D C Candy bars (boxes) A Less preferred bundles (Principle of Nonsatiation) 3 5 Indifference Curve (locus of all bundles giving equal level of satisfaction) Indifference Curve Between Two Goods Never Slopes Up Beanie Babies Why not? C Candy bars (boxes) B A Indifference Curve: Completeness (II) Preferences over all bundles (all bundles can be ranked) Beanie Babies C B A L Candy bars (boxes) U 1 J K U 2 U 3 U 0
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2010-03-04 2 Transitivity (III) If A is preferred to B, and if B is preferred to C, then A must be preferred to C. IfA>BandB>C thenA>C If A > B and B > C, then A > C Same principle as in math: < = > If A < B and B < C, then A < C
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This note was uploaded on 09/18/2010 for the course ECON 201 taught by Professor Beomsookim during the Fall '10 term at Korea University.

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lec2 - 2010-03-04 Develop a Model of Consumer Behavior •...

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