Notes-03_Preferences-2

Notes-03_Preferences-2 - Econ 3130 Spring 2012 R Masson...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 3130, Spring 2012, R. Masson Chapter 3: p. 1 Chapter 3: Preferences I. Introduction to what Varian calls this chapter: “Preferences” A. I would have called this a chapter on “ indifference curves 1. This chapter starts with “preference orderings,” but mostly focuses on a graphical representation consistent with these orderings in two good worlds. This graphical representation is called “indifference curves.” Chapter 4 looks at a mathematical representation of these indifference curves which can be generalized to more than two goods. So, “preference orderings” generate two tools, indifference curves (two good worlds) and Utility functions (N good worlds, N ± 1). Chapter 4 is called “Utility” and the parallel modeling concept is “Indifference Curves.” a. That is, indifference curves and utility functions are two ways of representing “preferences” 2. Preference Orderings ” can be thought of as choice rankings between one, two, three or more options. Although economists use the term “preference” to describe these orderings, these can be programmed into a computer (e.g., an android like Commander Data, can be programmed to have “preference orderings”), to make choices but not have meaningful “preferences” 3. Chapter 5 is called “Choice” . This chapter combines the concepts of indifference curves and/or utility theory to describe how choices may be modeled given the Budget Constraint from Chapter 2. 4. Chapter 6 on Demand then takes the concepts of chapter 5 and breaks them down into useful distinctions for a variety of different uses. E.g., using the analogy to theory as “maps,” chapter 6 is something like “If you are interested in wine tasting, there is the winery map, but if you are interested in hiking, there is the hiking trails map.” 5. The Chapters following 6 then look at variants on the theme B. The above “maps” the direction of the next few chapters/lectures following today
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Econ 3130, Spring 2012, R. Masson Chapter 3: p. 2 II. Some Terms A. “ Consumption Bundle ”: In 2-space, any/all specific quantities {x 1 ,x 2 } (or {x,y} with a composite commodity or Marshallian Money) a. In N-space we would have {x 1 ,x 2 ,...,x N } or {x 1 ,x 2 ,...,x N-1 ,y} 2. Note, I am now using x not q as my non-monetary quantity of product 3. Example, {x,y}={10,100} means having ten units of x and spending (optimally) $100 on all other goods where “optimally” is not well defined before Chapter 5 B. We want to know what a consumer chooses in terms of quantities to consume in some specific situation 1. The concept is static, it applies to a specific situation. a. For example, my preferences for Bacon versus Softshell Crabs are different at 8:00 AM than at Dinner time 2. But defining the situation leads to flexibility. For example the time frame may be varied by appropriate definition a. For example, the 8:00 AM and dinner time choices may reflect choices sitting down with a menu at each of these two times. But as an alternative, I could be
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern