Varian_Chapter04_Utility.ppt

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1、4UtilityUtilityFunctionsAutilityfunctionU(x)representsapreferencerelationifandonlyif:xyU(x)>U(y)xyU(x)

2、sy.UtilityFunctions&Indiff.CurvesConsiderthebundles(4,1),(2,3)and(2,2).Suppose(2,3)(4,1)~(2,2).Assigntothesebundlesanynumbersthatpreservethepreferenceordering;e.g.U(2,3)=6>U(4,1)=U(2,2)=4.Callthesenumbersutilitylevels.pUtilityFunctions&Indiff.CurvesAnindifferencecurvecontainsequallyp

3、referredbundles.Equalpreferencesameutilitylevel.Therefore,allbundlesinanindifferencecurvehavethesameutilitylevel.UtilityFunctions&Indiff.CurvesUº6Uº4(2,3)(2,2)~(4,1)x1x2pUtilityFunctions&Indiff.CurvesUº4Uº6Higherindifferencecurvescontainmorepreferredbundles.Utilityx2x1UtilityFunct

4、ions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1x2UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curv

5、esx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctions&Indiff.Curvesx1UtilityFunctionsThereisnouniqueutilityfunctionrepresenta

6、tionofapreferencerelation.SupposeU(x1,x2)=x1x2representsapreferencerelation.Againconsiderthebundles(4,1),(2,3)and(2,2).Goods,BadsandNeutralsAgoodisacommodityunitwhichincreasesutility(givesamorepreferredbundle).Abadisacommodityunitwhichdecreasesutility(givesalesspreferredbundle).Aneu

7、tralisacommodityunitwhichdoesnotchangeutility(givesanequallypreferredbundle).Goods,BadsandNeutralsUtilityWaterx’UnitsofwateraregoodsUnitsofwaterarebadsAroundx’units,alittleextrawaterisaneutral.UtilityfunctionSomeOtherUtilityFunctionsandTheirIndifferenceCurvesInsteadofU(x1,x2)=x1

8、x2consider