Ch 2 consumer theory basics

Eco 204 s ajaz hussain do not distribute example 1 in

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Unformatted text preview: ver consumption sets of one, two, and three goods (of course, one can write down utility models for more than three goods) – don’t worry if you don’t understand these yet: Examples of Utility Functions for { good defined over } ● Examples of Utility Functions for ( ● Examples of Utility Functions for ) and } ) ( ) {( goods defined over ( ● Below are graphs of some {( goods defined over ) } ) utility functions – don’t worry if you don’t understand these yet: 12 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. Example 1: In Wolfram Alpha type plot u=exp(3q) from q=0,3 Example 2: In Wolfram Alpha type plot u=3q + log(q) from q=0,10 ( Example 3: ) In Wolfram Alpha type plot u=3log(q1) + 2log(q2) from q1=0,10 q2=0,10 Example 4: ( ) ( )( ) 13 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. In Wolfram Alpha type plot u=(q1-3)^2 + (q2-4)^2 from q1=0,10 q2=0,10 From a consumer’s utility function we can easily tell whether the consumer perceives a particular commodity as “good”, “bad”, or “neutral” good. Intuitively: “Good” good If and then consumer perceives this good as a “good” good “Bad” good If and then consumer perceives this good as a “bad” good “Neutral” good If and does not change then consumer perceives this good as a “neutral” good ● Example: Utility function defined over { } ● Example: Utility function defined over { } { ● Example: Utility function defined over { } 14 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. This means: ● Example: { } { Utility functi...
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