321_3 - ECON 321 Spring 2011: Lecture 3 Chapters 4 and 5:...

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ECON 321 Spring 2011: Lecture 3 Chapters 4 and 5: Utility (finish) and Choice
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Definitions from last time Utility - Happiness, Satisfaction (older interpretation) Numerical ordering representing preferences (modern interpretation) Ordinal (utility) - Ranks or 'orders' alternatives (but relative differences are not important) Preserved under monotonic transformation Cardinal (utility) - Relative differences matter Preserved only under linear transformation Marginal utility – the additional utility gained from one more unit of consumption. The rate of change of utility The slope/derivative of utility
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Wolfram Demonstrations CobbDouglass: http://demonstrations.wolfram.com/CobbDouglas Budget line shift: http://demonstrations.wolfram.com/MarginalUtilit
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Definitions for Today Optimal Choice (for a consumer)- The consumption bundle(s) that maximize the consumer’s utility subject to the budget constraint. The best (most preferred) consumption bundles(s) inside the budget set.
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321_3 - ECON 321 Spring 2011: Lecture 3 Chapters 4 and 5:...

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