微观经济理论英文版课件：ch03 PREFERENCES AND UTILITY

1、Chapter 3PREFERENCES AND UTILITYCopyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.1Axioms of Rational ChoiceCompletenessif A and B are any two situations, an individual can always specify exactly one of these possibilities:A is preferred to BB is preferred to AA an

2、d B are equally attractive2Axioms of Rational ChoiceTransitivityif A is preferred to B, and B is preferred to C, then A is preferred to Cassumes that the individuals choices are internally consistent3Axioms of Rational ChoiceContinuityif A is preferred to B, then situations suitably “close to” A mus

3、t also be preferred to Bused to analyze individuals responses to relatively small changes in income and prices4UtilityGiven these assumptions, it is possible to show that people are able to rank in order all possible situations from least desirable to mostEconomists call this ranking utilityif A is

4、preferred to B, then the utility assigned to A exceeds the utility assigned to BU(A) U(B)5UtilityUtility rankings are ordinal in naturethey record the relative desirability of commodity bundlesBecause utility measures are not unique, it makes no sense to consider how much more utility is gained from

5、 A than from BIt is also impossible to compare utilities between people6UtilityUtility is affected by the consumption of physical commodities, psychological attitudes, peer group pressures, personal experiences, and the general cultural environmentEconomists generally devote attention to quantifiabl

6、e options while holding constant the other things that affect utilityceteris paribus assumption7UtilityAssume that an individual must choose among consumption goods x1, x2, xnThe individuals rankings can be shown by a utility function of the form:utility = U(x1, x2, xn; other things)this function is

7、 unique up to an order-preserving transformation8Economic GoodsIn the utility function, the xs are assumed to be “goods”more is preferred to lessQuantity of xQuantity of yx*y*Preferred to x*, y*?Worsethanx*, y*9Indifference CurvesAn indifference curve shows a set of consumption bundles among which t

8、he individual is indifferentQuantity of xQuantity of yx1y1y2x2U1Combinations (x1, y1) and (x2, y2)provide the same level of utility10Marginal Rate of SubstitutionThe negative of the slope of the indifference curve at any point is called the marginal rate of substitution (MRS)Quantity of xQuantity of

9、 yx1y1y2x2U111Marginal Rate of SubstitutionMRS changes as x and y changereflects the individuals willingness to trade y for xQuantity of xQuantity of yx1y1y2x2U1At (x1, y1), the indifference curve is steeper.The person would be willing to give up morey to gain additional units of xAt (x2, y2), the i

10、ndifference curveis flatter. The person would bewilling to give up less y to gainadditional units of x12Indifference Curve MapEach point must have an indifference curve through itQuantity of xQuantity of yU1 U2 /, undefined if y/x = /, and MRS = 0 if y/x /32Homothetic PreferencesFor the general Cobb

11、-Douglas function, the MRS can be found as33Nonhomothetic PreferencesSome utility functions do not exhibit homothetic preferencesutility = U(x,y) = x + ln y34The Many-Good CaseSuppose utility is a function of n goods given byutility = U(x1, x2, xn)The total differential of U is35The Many-Good CaseWe

12、 can find the MRS between any two goods by setting dU = 0Rearranging, we get36Multigood Indifference SurfacesWe will define an indifference surface as being the set of points in n dimensions that satisfy the equationU(x1,x2,xn) = k where k is any preassigned constant37Multigood Indifference Surfaces

13、If the utility function is quasi-concave, the set of points for which U k will be convexall of the points on a line joining any two points on the U = k indifference surface will also have U k 38Important Points to Note:If individuals obey certain behavioral postulates, they will be able to rank all

14、commodity bundlesthe ranking can be represented by a utility functionin making choices, individuals will act as if they were maximizing this functionUtility functions for two goods can be illustrated by an indifference curve map39Important Points to Note:The negative of the slope of the indifference

15、 curve measures the marginal rate of substitution (MRS)the rate at which an individual would trade an amount of one good (y) for one more unit of another good (x)MRS decreases as x is substituted for yindividuals prefer some balance in their consumption choices40Important Points to Note:A few simple functional forms can capture important differences in individuals preferences for two (or more) goodsCobb-Douglas functionlinear function (perfect substitutes)fixed proportions function (perfect complements)CES functionincludes the other three as special cases41Important Points to Note