Ch 2 consumer theory basics

3 eco 204 chapter 2 modeling consumer choice and

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Unformatted text preview: , not the customer, has “bargaining power” over the price. 5 Since commodities are sold in markets these have strictly positive prices and from now on we will always assume that the commodities have strictly positive prices . 3 ECO 204 CHAPTER 2 Modeling Consumer Choice and Behavior: Preferences and Budget Constraints (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Next, we have to recognize there may be physical constraints on the quantities of commodities available for consumption. For instance, you can’t walk into McDonald’s and order 1.33 burgers and 5.67 fries (I tried but was } burgers and { } fries. unceremoniously chucked out): indeed, you can only order { The consumption set is the set of quantities physically available for consumption and denoted by . For the most part, in ECO 204 we will assume that the consumption set for commodities is: { Here is what the typical ECO 204 consumption for } commodities looks like: Shaded side means it goes right forever Shaded side means it goes up forever This consumption set is an assumption; of course, depending on what we are trying to model, there could be other kinds of consumption sets, For example: Hours of Leisure/Day Else 24 Else Min Food Food # of entrees tonight at Joso’s 2 1 0 # of entrees tonight at Sushi Kaji 4 ECO 204 CHAPTER 2 Modeling Consumer Choice and Behavior: Preferences and Budget Constraints (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Top row, left to right: The first consumption set is for a situation where goods 1 and 2 can be consumed in any non{( }; the second consumption set is for a situation where the consumers can relax ) negative amount between 0 to 24 hours a day and where “everything else” can be consumed in any non-negative amount: {( )⏟ } ⏟ The third consumption set is for a situation where the consumer can consume any amount of food greater than a minimum threshold (otherwise the consumer ceases to be) while all else can be consumed in any non-negative amount: {( )⏟ ⏟ } Bottom row, left to right: The first consumption set is for a situation where good 1 can be consumed in any amount but {( ) good 2 must be consumed in integer amounts: { }} the second consumption set is for a situation for the number of entrees that can be ordered at any particular time at either Sushi Kaj...
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