Ch03_spr08_pam200 - PAM 200 Intermediate Microeconomics A....

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Unformatted text preview: PAM 200 Intermediate Microeconomics A. Sinan nr Consumer Preferences Consumer Preferences Chapter 3 Chapter 3 PAM 200 A. Sinan nr 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. Chapter 3 PAM 200 A. Sinan nr 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 200 A. Sinan nr 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 dont want, having more of something cannot make them worse off. Chapter 3 PAM 200 A. Sinan nr 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 200 A. Sinan nr Preferences: Convexity Simply put, we assume mixtures of goods are preferable to extremes....
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This note was uploaded on 04/03/2008 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell University (Engineering School).

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Ch03_spr08_pam200 - PAM 200 Intermediate Microeconomics A....

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