PPT-Consumer Preferences and the Concept of Utility

Introduction Supply and Demand Models Ch 2 are useful for analyzing economic questions concerning markets How will increasing the real wage affect output In these models we summed each individuals demand to obtain the market demand curve. . Ipeirotis. (with . Anindya. . Ghose. and . Beibei. Li). . Leonard N. Stern School of Business. New York University . Towards a Theory Model for Product Search. P.V. . Viswanath. For a First Course in . INvestments. Learning Goals. 2. How do we characterize individuals’ preferences for taking risk?. How do we use utility functions over asset returns?. How do we evaluate investors’ risk preferences?. And the impossibility of utility maximisation. From indifference…. Concept of subjective utility dates back at least to Aristotle; made central tenet of economics and philosophy by Jeremy Bentham (. Week 1 – Introduction to the Module. Sarah Hill. sarah.hill@bucks.ac.uk. Todays. Agenda . Names and Introductions. Blackboard – VLE. Introduction Lecture to Consumer behaviour. The study of the processes involved when individuals or groups select, purchase, use or dispose of products, services, ideas or experiences to satisfy needs and desires. Part I. CONSUMER THEORY. Laura Sochat. Budget constraint I. Income is one of the factors affecting the quantity demanded by consumers. . I like to spend money on food and on clothes. Assume they cost £5/g and £10/unit respectively. Also assume that my weekly income is £200.. 3.1 Consumer Preferences. 3.2 Budget Constraints. 3.3 Consumer Choice. 3.4 Revealed Preference. 3.5 Marginal Utility and Consumer Choice. 3.6 Cost-of-Living Indexes. Consumer Behavior. ●. . theory of consumer behavior . (. Quasiconvex. preferences). L7. Comparative cheap talk (JET 2007). Persuasion by Cheap Talk (AER 2010). Chakraborty. an . Harbaugh. Multidimensional Cheap Talk. Two agents: Sender (S) and Receiver (R) . x y: x is preferred strictly to y.. x . ~. y: x and y are equally preferred.. x y: x is preferred at least as much as is y.. p. ~. f. Preferences - A Reminder. Completeness. : For any two bundles x and y it is always possible to state either that . Chapter 2. 2. Good 1 (. x . 1. ). 0. 20. 25. 50. Good 2 (. x. 2. ). 12. 25. 50. b. a. Unit of Analysis: Consumption Bundles. The . consumption possibility set. Assumptions on consumption . possibility . And the impossibility of utility maximisation. From indifference…. Concept of subjective utility dates back at least to Aristotle; made central tenet of economics and philosophy by Jeremy Bentham (. Consumer Choice. Postulate: . an unproved and indemonstrable statement that should be taken for granted: used as an initial premise or underlying hypothesis in a process of . reasoning. Consumer choice postulate: People choose from available options to maximize their well-being (utility).. The utility may be defined as the power of commodity or services which satisfy the human wants. It has nothing to do with usefulness or harmfulness but simply refers to . wheather. the goods & services satisfy human beings or not. In economics the goods whether they are useful or not posses utility which can satisfy human wants.. 3.5. ●. . marginal utility (MU) . Additional satisfaction obtained from consuming one additional unit of a good.. ●. . diminishing marginal utility . Principle that as more of a good is consumed, the consumption of additional amounts will yield smaller additions to utility.. Arsens. Jules . Dupuit. . in 1844. Later . Alfred Marshall . developed this concept in his famous work . ‘Principles of Economics'. . . In our daily life, we consume many commodities that are available cheap. Example: salt, match box news papers, etc. The utility from these commodities is so high that we would be prepared to pay higher prices for them than we actually pay. .