Lecture_2_January 28

# Lecture_2_January 28 - Logistics LOGISTICS Read this week...

This preview shows pages 1–11. Sign up to view the full content.

January 28, 2010 1 L OGISTICS Logistics Read this week Chapter -1 (mathematical refresher) Chapter 0 (introduction to representative-agent framework) Chapter 1 (consumer theory) Read for next week Chapter 2 (static consumption-leisure framework) Practice Problem Set 1 Posted on web Reviews consumer theory Discuss in recitations this week Recitations begin tomorrow All course material posted on course website on www.elms.edu

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

View Full Document
R EVIEW OF C ONSUMER T HEORY (C ONTINUED ) J ANUARY 28, 2010
January 28, 2010 3 U TILITY F UNCTIONS Review of Consumer Theory Describe how much “happiness” or “satisfaction” an individual experiences from “consuming” goods – the benefit of consumption Marginal Utility The extra total utility resulting from consumption of a small/incremental extra unit of a good Mathematically, the (partial) slope of utility with respect to that good One-good case: u ( c ), with du / dc > 0 and d 2 u / dc 2 < 0 Recall interpretation: strictly increasing at a strictly decreasing rate Diminishing marginal utility Two-good case: u ( c 1 , c 2 ), with u i ( c 1 , c 2 ) > 0 and u ii ( c 1 , c 2 ) < 0 for each of i = 1,2 Utility strictly increasing in each good individually (partial) Diminishing marginal utility in each good individually Readily extendable to N -good case: u ( c 1 , c 2 , c 3 , c 4 ,…, c N ) Alternative notation: du / dc OR u ’( c ) OR u c ( c ) OR u 1 ( c )

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

View Full Document
January 28, 2010 4 U TILITY F UNCTIONS Review of Consumer Theory One-good case c u(c) Slope (marginal utility) asymptotes to (but never reaches…) zero Example: u ( c ) = ln c or u ( c ) = sqrt( c )
January 28, 2010 5 U TILITY F UNCTIONS Review of Consumer Theory One-good case Two-good case c u(c) Slope (marginal utility) asymptotes to (but never reaches…) zero Example: u ( c ) = ln c or u ( c ) = sqrt( c ) Example: u ( c 1 , c 2 ) = ln c 1 + ln c 2 or u ( c 1 , c 2 ) = sqrt( c 1 ) + sqrt( c 2 )

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

View Full Document
January 28, 2010 6 U TILITY F UNCTIONS Review of Consumer Theory One-good case Two-good case c u(c) Slope (marginal utility) asymptotes to (but never reaches…) zero Example: u ( c ) = ln c or u ( c ) = sqrt( c ) Example: u ( c 1 , c 2 ) = ln c 1 + ln c 2 or u ( c 1 , c 2 ) = sqrt( c 1 ) + sqrt( c 2 ) c 1 u(c 1 ,c 2 ) Viewed in good-by- good space
January 28, 2010 7 U TILITY F UNCTIONS Review of Consumer Theory One-good case Two-good case c u(c) Slope (marginal utility) asymptotes to (but never reaches…) zero Example: u ( c ) = ln c or u ( c ) = sqrt( c ) Example: u ( c 1 , c 2 ) = ln c 1 + ln c 2 or u ( c 1 , c 2 ) = sqrt( c 1 ) + sqrt( c 2 ) c 1 u(c 1 ,c 2 ) c 2 u(c 1 ,c 2 ) Viewed in good-by- good space

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

View Full Document
January 28, 2010 8 U TILITY F UNCTIONS Review of Consumer Theory Alternative views Emphasizing the contours Indifference Curve: the set of all consumption bundles that deliver a particular level of utility/happiness
January 28, 2010 9 U TILITY F UNCTIONS Review of Consumer Theory Alternative views Emphasizing the contours Indifference Curve: the set of all consumption bundles that deliver a particular level of utility/happiness Viewing only the contours

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

View Full Document
January 28, 2010 10 U TILITY F UNCTIONS Review of Consumer Theory
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• 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.

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

• 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.

Dana University of Pennsylvania ‘17, Course Hero Intern

• 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.

Jill Tulane University ‘16, Course Hero Intern