Tsinghua Micro Ch3 020920 - Chapter Three Preferences...

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Unformatted text preview: Chapter Three Preferences 消消消消消 Where Are We in the Course? ◆ We are studying the 1 st of the three blocks of microeconomics: Consumer behavior, production theory, and market equilibrium ◆ Within the 1 st block, we are working on the 2 nd of the three components: choice set, preference, and consumer demand What Do We Mean by Preference? ( 偏偏 ) ◆ It refers to the ordered relationship among alternative choices given by an economic agent. ◆ In most economic literature, consumer preference is treated as the ultimate exogenous element. Preference Relations ◆ Comparing two different consumption bundles, x and y: – strict preference : x is more preferred than is y. – weak preference : x is as at least as preferred as is y. – Indifference : x is exactly as preferred as is y. Notations ◆ denotes strict preference; ◆ ∼ denotes indifference; ◆ denotes weak preference; ~ Preference Relations ◆ x y and y x imply x ∼ y. ◆ x y and (not y x) imply x y. ~ ~ ~ ~ Assumptions about Preference Relations ◆ Completeness : For any two bundles x and y it is always possible to make the statement that either x y or y x. ~ ~ Assumptions about Preference Relations ◆ Reflexivity : Any bundle x is always at least as preferred as itself; i.e. x x. ~ Assumptions about Preference Relations ◆ Transitivity : If x is at least as preferred as y, and y is at least as preferred as z, then x is at least as preferred as z; i.e. x y and y z x z. ~ ~ ~ Indifference Curves 无无无无无 ( 无 , 无无无无 ) ◆ Take a reference bundle x’. The set of all bundles equally preferred to x’ is the indifference curve containing x’ ; the set of all bundles y ∼ x’. ◆ Since an indifference “curve” is not always a curve a better name might be an indifference “set”. Indifference Curves x x 2 x x 1 x” x” x”’ x”’ x’ x’ ∼ ∼ x” x” ∼ ∼ x”’ x”’ x’ Indifference Curves x x 2 x x 1 z z x x y y x y z Indifference Curves x 2 x 1 x All bundles in I 1 are strictly preferred to all in I 2 ....
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This note was uploaded on 12/06/2011 for the course BUSINESS MicroEco taught by Professor Luyu during the Spring '11 term at Tsinghua University.

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Tsinghua Micro Ch3 020920 - Chapter Three Preferences...

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