E251.F11.W04.R1.Consumer Choice

E251.F11.W04.R1.Consumer Choice - ECON 251x Week 04(Revised...

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Unformatted text preview: ECON 251x Week 04 (Revised R1) Consumer Choice Chapter 3 1 Transaction Costs of Exchange • Information Costs – Search Costs – Quality Identification Cost • Negotiating Costs : Cost of agreeing on what and how much will be exchanged • Transportation Costs : Cost of moving goods between parties 2 Postulates of Human Behavior 1: Each person desires a multitude of Goods. 2: For each person, some goods are scarce. 3. Gross Substitution : Each person is willing to give up some of any good for enough more of another good or group of goods. 4. Diminishing Marginal Value : As a person acquires more of any good, the personal marginal value of an additional unit declines. We measure personal marginal value of one good (X) as the most of some other good (Y) the individual is willing to give up to acquire one more unit of a good. (X). (Also referred to as the Marginal rate of Substitution) (MRS) 5. People are rational and innovative. A. Rationality simply means transitive in terms of choice. B. At any point in time: If A is preferred to B; and B is preferred to C: A is preferred to C. 6. Not all people have identical relative values across goods....
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This note was uploaded on 02/11/2012 for the course ECON 251 at USC.

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E251.F11.W04.R1.Consumer Choice - ECON 251x Week 04(Revised...

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