Lec 3的.pdf

LECTURE 3 PREFERENCE AND CHOICE 鈪 鍚村缓宄 澶嶆棪澶у涓浗缁忔祹鐮旂┒涓績 2010 绉嬪鏈 An Overview of Consumer theory Formulate the consumer鈥檚 utility maximization problem subject to budget constraint Solve the consumer鈥檚 problems and derive the demand functions Study the properties of demand functions 2010 绉嬪鏈 Autumn Semester 2010 Intermediate Microeconomics WU JIANFENG Today鈥檚 outline Four building blocks of consumer choice theory: 飩 The consumption set 飩 The preference relation 飩 The feasible set 飩 Behavioral consumption 飩 Existence of utility function 2010 绉嬪鏈 Autumn Semester 2010 Intermediate Microeconomics WU JIANFENG The consumption set 飦 We have L commodities, each of which is measured in some infinitely divisible units. 飦 Let x 飪嶳 be the number of units of good l. l 飥 飦 We denote a vector of the L goods (consumption bundle) by x (x ,x ,...,x ) 飪嶳L 1 2 L 飥 飦 Assumptions of the consumption set X. 飦︼偣X 飪峈L . 飥 X is closed. X is convex. 0 鈭圶. 2010 绉嬪鏈 Autumn Semester 2010 Intermediate Microeconomics WU JIANFENG Preference 鈥 Description of a preference relation: If 肀nd 肀re in X and 肀 鈮 肀?a binary relation), it can say that 肀s at least as good as 肀? 鈥 Axioms of a preference relation: Axiom 1 (Completeness) : 鈭€肀? 肀︹垔 X, either 肀 鈮 肀? or 肀︹壙肀? Axiom 2 (Transitivity) : 鈭€肀? 肀? 肀р垔 X, 肀 鈮 肀nd 肀︹壙 肀? then 肀 鈮 肀 . 2010 绉嬪鏈 Autumn Semester 2010 Intermediate Microeconomics WU JIANFENG Preference Definitions: 鈥 Def 1: The preference relation 鈮 on the consumption set X is rational, if it satisfies the prosperities of completeness and transitivity. 鈥 Def 2: The binary relation 鈮