ECON 201 Lecture Notes - Lecture 3: Indifference Curve, Utility, Consistency

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Model of consumer behavior: premises of the model: 1. Individual tastes or preferences determine the amount of pleasure people derive from the goods and services they consume. Consumers face constraints, or limits, on their choices. Consumers maximize their well-being or pleasure from consumpion subject to the budget and other constraints they face. Bundles of goods on indiference curves further from the origin are preferred to those on indiference curves closer to the origin. There is an indiference curve through every possible bundle. The only requirement for a paricular assignment of numbers to be classiied as a uility funcion represening a preference ordering" is that it must retain the rank order of consumpion bundles in terms of the preference of the consumer. Thus, any other assignment of numbers that keeps the ranking of bundles intact will also be a uility representaion.

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