Lecture 2. Preferences Utility 范里安版《中级微观经济学》ppt培训资料.pptVIP

Convexity x2 y2 x1 y1 x y z =(tx1+(1-t)y1, tx2+(1-t)y2) is preferred to x and y for all 0 t 1. Convexity x y Preferences are strictly convex when all mixtures z are strictly preferred to their component bundles x and y. x2 y2 x1 y1 Weak Convexity x’ y’ z’ Preferences are weakly convex if at least one mixture z is equally preferred to a component bundle. x z y Non-Convex Preferences The mixture z is less preferred than x or y. z Better x2 y2 x1 y1 Better x2 y2 x1 y1 The slope of an indifference curve is its marginal rate-of-substitution (MRS). Slopes of Indifference Curves x2 x1 x’ Dx2 Dx1 MRS at x’ is Slopes of Indifference Curves Good 2 Two goods a negatively sloped indifference curve MRS 0 Better Worse Good 1 Better Worse Bad 1 Good 2 One good and one bad  a positively sloped indifference curve MRS 0 MRS Ind. Curve Properties Good 2 Good 1 MRS = - 5 MRS = - 0.5 MRS always increases with x1 (becomes less negative) if and only if preferences are strictly convex. Convex indifference curve means diminishing MRS. MRS Ind. Curve Properties MRS = - 0.5 MRS = - 5 MRS decreases(becomes more negative)as x1 increasesnonconvex preferences Good 2 Good 1 MRS Ind. Curve Properties MRS= - 0.5 MRS = - 1 MRS = - 2 MRS is not always increasing as x1 increasesnonconvex preferences. Good 2 Good 1 MRS measures the rate at which the consumer is just on the margin of being willing to substitute good 1 for good 2 MRS measures the marginal willingness to pay, as it is just the amount of good 2 that the consumer is “willing” to “pay” for a “marginal” amount of extra consumption of good 1. MRS WTP A utility function U(x) represents a preference relation if and only if: x’ x” U(x’) U(x”) x’ x” U(x’) U(x”) x’ ~ x” U(x’) = U(x”). A utility function is a way of assigning a number to every possible consumption bundle such that more-preferred bundles get assigned larger num