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1、UtilityMaximizationCHAPTERFOURandChoiceInthischapterweexaminethebasicmodelofchoicethateconomistsusetoexplainindi-viduals’behavior.Thatmodelassumesthatindividualswhoareconstrainedbylimitedincomeswillbehaveasthoughtheyareusingtheirpurchasingpowerinsuchaw
2、ayastoachievethehighestutilitypossible.Thatis,individualsareassumedtobehaveasthoughtheymaximizeutilitysubjecttoabudgetconstraint.Althoughthespecificapplicationsofthismodelarevaried,aswewillshow,allarebasedonthesamefundamentalmathemati-calmodel,andallarr
3、iveatthesamegeneralconclusion:Tomaximizeutility,individualswillchoosebundlesofcommoditiesforwhichtherateoftrade-offbetweenanytwogoods(theMRS)isequaltotheratioofthegoods’marketprices.Marketpricesconveyinformationaboutopportunitycoststoindividuals,andthi
4、sinformationplaysanimpor-tantroleinaffectingthechoicesactuallymade.UtilitymaximizationandlightningcalculationsBeforestartingaformalstudyofthetheoryofchoice,itmaybeappropriatetodisposeoftwocomplaintsnoneconomistsoftenmakeabouttheapproachwewilltake.First
5、isthechargethatnorealpersoncanmakethekindsof‘‘lightningcalculations’’requiredforutilitymaximization.Accordingtothiscomplaint,whenmovingdownasupermar-ketaisle,peoplejustgrabwhatisavailablewithnorealpatternorpurposetotheiractions.Economistsarenotpersuade
6、dbythiscomplaint.Theydoubtthatpeoplebehaverandomly(everyone,afterall,isboundbysomesortofbudgetconstraint),andtheyviewthelightningcalculationchargeasmisplaced.Recall,again,Friedman’spoolplayerfromChapter1.Thepoolplayeralsocannotmakethelightningcalculati
7、onsrequiredtoplanashotaccordingtothelawsofphysics,butthoselawsstillpredicttheplayer’sbehavior.Sotoo,asweshallsee,theutility-maximizationmodelpredictsmanyaspectsofbehavioreventhoughnoonecarriesaroundacomputerwithhisorherutil-ityfunctionprogrammedintoit.
8、Tobeprecise,economistsassumethatpeoplebehaveasiftheymadesuchcalculations;thus,thecomplaintthatthecalculationscannotpos-siblybemadeislargelyirrelevant.Still,inrecenttimeseconomistshaveincreasinglytriedtomodelsomeofthebehavioralcomplicati