MGEB02H3 Lecture Notes - Lecture 2: Barter, Ceteris Paribus, Utility

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEB02H3
• Professor: April M.Franco

Document Summary

Mgeb02- lecture 2: consumer behaviour (pt. i & ii) = no, sometimes producers may choose to use price controls like the beer store in ontario. Consumer theory formal description of how consumers behave. Goals predi(cid:272)t (cid:272)o(cid:374)su(cid:373)er (cid:272)hoi(cid:272)es to deter(cid:373)i(cid:374)e (cid:858)de(cid:373)a(cid:374)d(cid:859) of goods, e(cid:448)aluate effe(cid:272)ts of pri(cid:272)e (cid:272)ha(cid:374)ges o(cid:374) well-being of consumers (preferences, budget constraints, consumer decision-making) Preference relation des(cid:272)ri(cid:271)es a(cid:374) i(cid:374)di(cid:448)idual(cid:859)s attitude to(cid:449)ards alter(cid:374)ati(cid:448)es: binary relation on set of possible alternatives, redefine commodity to be a good or the negative of the bad e. g. air pollution clean air. Basic assumptions: axioms of rational choice: axiom 1: completeness. If a & b are any 2 bundles, an individual can always specify @ least one of these possibilities: assume individual can compare all pairs of possible choices. A is (weakly) preferred to b: a>b. B is (weakly) preferred to a: b>a: axiom 2: transitivity. If a consumer prefers a to b and b to c, then the consumer also prefers a to c.