ECON 401 Chapter Notes - Chapter 4: Utility, Ordinal Utility, Level Set

• School: U of M
• Department: Economics
• Course: ECON 401
• Professor: Proulx

Document Summary

Utility: an indicator of a person"s overall well-being. Consumer preferences: utility is seen only as a way to describe preferences. Utility function: a way of assigning a number to every possible consumption bundle such that more preferred bundles get assigned larger numbers than less-preferred bundles. Ordinal utility: the kind of utility where only the order of preferences matters. The magnitude of the utility function is only important insofar as it ranks the different consumption bundles; the size of the utility difference doesn"t matter. Different ways to assign utilities when the consumer prefers a to b and b to c. Monotonic transformation: a way of transforming one set of numbers into another set of numbers in a way that preserves the order of the numbers. A monotonic transformation of a utility function is a utility function that represents the same preferences as the original utility function. Cardinal utility theories: theories of utility that attach a significance to the magnitude of utility.