preferences - Preferences Utility Constrained Choice and...

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Preferences, Utility, Constrained Choice and Equilibrium
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) A theory of consumer: - Tastes or preferences determine the pleasure that consumers get - Consumers face constraints in their choice - Consumers maximize their well-being subject to the constraints ) Why this theory? - Allows us to make predictions on individual behavior - As a base for aggregated models of the behavior of individuals
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Preferences: assumptions and representation ) Consumer chooses among bundles (or market baskets or combinations of goods) - a specific quantity for each good ) Digression: Representing the preferences with two goods for the sake of simplicity ) Preferences over bundles are (assumptions): - Complete: consumer can rank any two bundles - Transitive: if consumer prefers A to B and B to C, also prefers A to C - Nonsatiable: the more-is-better hols for any good
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) A map of preferences: indifference curves - Indifference curves farther from the origin represent preferred bundles - There is an indifference curve through every possible
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This note was uploaded on 02/06/2012 for the course ECONOMICS 201 taught by Professor Jaumandreu during the Fall '09 term at BU.

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preferences - Preferences Utility Constrained Choice and...

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