ECO204Y1 Chapter Notes - Chapter 2: Convex Preferences, Utility, Weighted Arithmetic Mean
Document Summary
Infinite utility functions for one preference due to pmts. Use mrs to gauge intensity of preferences at arbitrary bundle. Sum of utility from good 1and good 2. Mu1 = , mu2 = : mrs = - / . Convex preferences: any bundle c that is weighted average of bundles a and b where a ~ b is indifferent. =1: good 1 is equally preferred to good 2. >1: good 1 is preferred more than good 2. <1: good 2 preferred more than good 1. Q2: mu1 = q1, mrs = - q2 / q1, q2 = (u/q1, when both goods good: Interior bundles are preferred: both goods are necessary, strictly convex preferences, mrs not constant. U = (q1: u = lnq1 + lnq2. Complements (leontief) utility function: u = min( q1, q2, good as long as , > 0, q1 = q2.