Lecture Notes 4

Lecture Notes 4 - 02/02/11 Theory behind demand curve:...

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Unformatted text preview: 02/02/11 Theory behind demand curve: Consumer behavior: how we as individuals make decisions about how and why we spend our money. As rational individuals, what is our goal as consumers in the market place? We are trying to make ourselves better off. The goal is to maximize utility, Utility function is a function of consumption of various goods. Happiness is difficult to quantify but the change in happiness is what is measured Assumptions about consumer preferences: o 1. Consumer preferences are complete consumers can always make a decision, in all choices that are faced o 2. Consumer preferences are transitive consumers make consistent choices, their preferences are consistent o 3. Nonsatiation: consumers are always interested in purchasing more is always better Cardinal: assign a counting measure to the satisfaction derived from a particular good Total Utility: utils are measures of satisfaction Total Utility Function: positively slope, as more of a good is consumed, total utility increases...
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Lecture Notes 4 - 02/02/11 Theory behind demand curve:...

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