2010_lecture_3_ho

# 2010_lecture_3_ho - Economics 101—Lecture 3 The Basic...

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Unformatted text preview: Economics 101—Lecture 3 The Basic Model of Consumer Choice I George J. Mailath January 20, 2011 Consumer Preferences A consumption bundle: x = ( x 1 , x 2 , x 3 , . . . , x n ) where x i is the amount of good i consumed (e.g., books, pizzas, holidays, fancy dinners, operas, movies). In many examples, n = 2 (easier to draw pictures), and then write ( x , y ) for a consumption bundle. If consumer (Bruce) prefers a bundle x to another bundle x , write x x . “Rational” Choice Plausible assumptions on behavior: 1 preferences are complete : Bruce can compare any two bundles, i.e., for all x and x , either x x , or x x , or both (i.e., Bruce is indifferent between x and x , written x x ). If Bruce strictly prefers x to x (i.e., x x but not x x ), then write x x . 2 preferences are transitive : If x x and x x , then x x . Representing Preferences Suppose choice set is { x 1 , x 2 , x 2 } and x 1 x 2 x 3 . (For example, x 1 is Tristan und Isolde at the Metropolitan Opera, x 2 is a day in the Philadelphia Museum of Art, and x 3 is Swan Lake.) If Bruce must choose from { x 1 , x 3 } , he chooses x 1 . If Bruce must choose from { x 2 , x 3 } , he chooses x 2 ....
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2010_lecture_3_ho - Economics 101—Lecture 3 The Basic...

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