Class 3s - Department of Economics LeBow College of...

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Department of Economics Fall 2009 LeBow College of Business Microeconomics 301 Drexel University Professor Stehr Class 3 Outline 1) Consumer Preferences 2) Indifference Curves 3) Utility 4) Budget Constraint Consumer Preferences Bundle or Basket: Example 1: “12 Days of Christmas” is a well known song about a bundle 1 partridge in a pear tree 2 turtle doves 12 Lords a Leaping Example 2: Consumers have preferences over the bundles. Assumptions: 1. Completeness: given two bundles A and B, the consumer will either prefer A to B, prefer B to A, or be indifferent between A and B. 2. Transitivity: 3. More is better: consumers prefer a bundle with at least as much of every good and strictly more of at least one good. Indifference Curve—set of all bundles that a consumer considers to be just as good as one another 1
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Consumer is indifferent between all the bundles on the indifference curve. Example: Jake thinks 1 coke and 3 burgers are just as good as 3 cokes and 2 burgers. Indifference Map: set of indifference curves that describe a consumer’s preferences Standard IC’s have 3 properties: 1. Downward sloping 2
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2. IC’s can’t cross ones another. For a moment, suppose they did cross.
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Class 3s - Department of Economics LeBow College of...

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