Ch03_spr08_pam200

Ch03_spr08_pam200 - PAM 200 Intermediate Microeconomics A...

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Unformatted text preview: PAM 200 Intermediate Microeconomics A. Sinan Ünür Consumer Preferences Consumer Preferences Chapter 3 Chapter 3 PAM 200 – 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. Chapter 3 PAM 200 – 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 200 – 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. Chapter 3 PAM 200 – 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 200 – A. Sinan Ünür Preferences: Convexity • Simply put, we assume mixtures of goods are preferable to extremes....
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Ch03_spr08_pam200 - PAM 200 Intermediate Microeconomics A...

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