Lecture5 - Preferences - Lecture5 PreferencesandUtility

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Lecture 5 Preferences and Utility Econ 101A: Microeconomic Theory UC Berkeley Spring 2011 Prof. Cristian Santesteban
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Introduction Notion of a bundle or consumption set: a collection of goods and services that an individual might consume Example: Bundle 1: a pair of jeans, two pairs of shoes, and 5 pounds of chocolate Bundle 2: two pairs of jeans, one pair of shoes, and 2 pounds of chocolate
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Introduction Notion of preferences: tell us how an individual would rank any two bundles, assuming the bundles were available at no cost. The actual choice will ultimately depend on a number of factors in addition to preferences, including income and what the bundles cost.
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Formalizing Preferences Assume consumers behave rationally. Rational preferences satisfy two key properties: completeness and transitivity. Completeness . For any two bundles x and y, the consumer is able to rank them as follows: x is preferred to y; y is preferred to x; or x and y are equally preferred.
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Lecture5 - Preferences - Lecture5 PreferencesandUtility

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