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Deck 4 - Econ 301 Microeconomics L lick to edit Master...

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Click to edit Master subtitle style 5/11/11 Lecture 4. Consumer Choice Professor Mian Dai Spring, 2011 Econ 301 Microeconomics
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5/11/11 A road map for today’s lecture Preferences Three axiom of preferences. Utility: the representation of preference Marginal Utility Marginal Rate of Substitution How utility/marginal utility are related with preferences Several special utility function
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5/11/11 Why we care about consumer choice? Underlying fundamentals of demand. Elasticity is a good descriptive measure of demand and supply but it not predictive. Useful to analysis the effectiveness of various kinds of firm strategies and government policies. E.g. how to design pricing of a cell phone plan, should the manufacture issue coupon or cash rebate etc. In this lecture, we will go through some fundamentals of preferences and utility
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5/11/11 Baskets baskets or bundles refers to combinations good or services that an individual might consume. E.g. Mike can choose to consume game and movies. Several possible baskets (combination of games and movies) are point a-f. Point d 3 0 2 5 1 5 M , Movies per semester 2 5 2 0 1 5 1 0 5 d a b e c f A B G, G a m es p er se m es te r Consumer preferences tells us how the baskets are ranked.
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5/11/11 Preference to utility If the preference (over baskets) satisfies
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