微观经济学Microeconomics英文课件PPT 03 Preferences.pptVIP

We have talked about preference and indifference curve in this chapter. To put preference in a more mathematically convenient way, we introduce the utility function in the coming chapter. Then we can put together preference/utility and budget constraint to analyze consumer choices. * If one just do not care about whether or how much to have a commodity, this is called a neutral good. E.g.: goods that you don’t use and do not care about their existence. If one commodity is neutral, the other is good, the indifference curve would be vertical / horizontal. * * If a consumer always regards units of commodities 1 and 2 as equivalent, then the commodities are perfect substitutes. Only the total amount (or a weighted sum) of the two commodities in bundles determines their preference rank-order. Example: orange juice of two different brands. Apartment in different locations. * x2 x1 8 8 15 15 Slopes are constant at - 1. I2 I1 Bundles in I2 all have a totalof 15 units and are strictly preferred to all bundles in I1, which have a total of only 8 units in them. * If a consumer always consumes commodities 1 and 2 in fixed proportion (e.g. one-to-one), then the commodities are perfect complements. Only the number of pairs of units of the two commodities determines the preference rank-order of bundles. E.g.: left shoes/right shoes; computer and monitor. * x2 x1 I1 45o 5 9 5 9 Each of (5,5), (5,9) and (9,5) contains5 pairs so each is equally preferred. * x2 x1 I2 I1 45o 5 9 5 9 Since each of (5,5), (5,9) and (9,5) contains 5 pairs, each is less preferred than the bundle (9,9) which contains 9 pairs. * A bundle strictly preferred to any others is a satiation point or a bliss point. The satiation point is the best bundle. More of anything are not better. What do indifference curves look like for preferences exhibiting satiation? * x2 x1 Satiation(bliss)point * x2 x1 Better Better Better Satiation(bliss)point * x2 x1 Better Better Better Satiation(b