Varian_Chapter03_Preferences.ppt

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1、3PreferencesRationalityinEconomicsBehavioralPostulate:Adecisionmakeralwayschoosesitsmostpreferredalternativefromitssetofavailablealternatives.Sotomodelchoicewemustmodeldecisionmakers’preferences.PreferenceRelationsComparingtwodifferentconsumptionbundles,xandy:strictpreference:xismorepreferredtha

2、nisy;xy.indifference:xisexactlyaspreferredasisy;x~y.weakpreference:xisasatleastaspreferredasisy;xy.p~fPreferenceRelationsxyandyximplyx~y.xyand(notyx)implyxy.~f~f~f~fpAssumptionsaboutPreferenceRelationsCompleteness:Foranytwobundlesxandyitisalwayspossibletomakethestatementthateitherxyoryx.~f~fAs

3、sumptionsaboutPreferenceRelationsReflexivity:Anybundlexisalwaysatleastaspreferredasitself;i.e.xx.~fAssumptionsaboutPreferenceRelationsTransitivity:Ifxisatleastaspreferredasy,andyisatleastaspreferredasz,thenxisatleastaspreferredasz;i.e.xyandyzxz.~f~f~fIndifferenceCurvesTakeareferencebundlex.The

4、setofallbundlesequallypreferredtoxistheindifferencecurvecontainingx.IndifferenceCurvesCannotIntersectx2x1xyzI1I2SlopesofIndifferenceCurvesWhenmoreofacommodityisalwayspreferred,thecommodityisagood.Ifeverycommodityisagoodthenindifferencecurvesarenegativelysloped.SlopesofIndifferenceCurvesBetterWors

5、eGood2Good1Twogoodsanegativelyslopedindifferencecurve.SlopesofIndifferenceCurvesIflessofacommodityisalwayspreferredthenthecommodityisabad.SlopesofIndifferenceCurvesBetterWorseGood2Bad1Onegoodandonebadapositivelyslopedindifferencecurve.ExtremeCasesofIndifferenceCurves;PerfectSubstitutesIfaconsum

6、eriswillingtosubstituteonecommodityfortheotherataconstantrate,thenthecommoditiesareperfectsubstitutesandonlythetotalamountofthetwocommoditiesinbundlesdeterminestheirpreferencerank-order.ExtremeCasesofIndifferenceCurves;PerfectSubstitutesx2x1881515Slopesareconstantat-1.I2I1BundlesinI2allhaveatotal

7、of15unitsandarestrictlypreferredtoallbundlesinI1,whichhaveatotalofonly8unitsinthem.ExtremeCasesofIndifferenceCurves;PerfectComplementsIfaconsumeralwaysconsumescommodities1and2infixedproportion(e.g.one-to-one),thenth