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**preview**shows half of the first page. to view the full**1 pages of the document.**Topic 1 – Preference

(Lecture 2 – Sept 21st)

Puzzles (intro to consumer choices)

1. Individuals in need receive voucher’s (housing, food) or cash w/no restrictions with respect to use;

Q: which one is more preferable?

2. Cell phone company setting up pricing program:

Plan 1: fixed sum, w/unlimited minutes & data;

Plan 2: fixed sum, w/ x # of minutes & y # of data, and charge you for additional units;

Plan 3: no fixed sum, charge per unit;

Q: what would be the optimal?

“Commodity Bundle”

– an order list of goods;

-- Suppose N goods, defined by x1, x2, … , xn

-- Bundle X = (x1, x2,…,xn)

-- Bundle Y = (y1,y2,…,yn)

-- Consumers would be able to compare goods in two bundles, be able to rank/weigh these goods from

“most preferred” to “lease preferred”;

-- Common that preferences for different customers are different (different values)

Notation:

-- “X > Y” consumer “strictly prefers” X to Y

-- “X～Y” consumer is “indifferent” between X and Y

-- “X Y” consumer “weakly prefers X to Y” OR “Consumer prefer X to Y or indifferent”

Axioms of “rational” behavior

1. Completeness: if the consumer has to compare two bundles X, Y

One of (“X>Y” OR “X～Y” OR “X Y”) must be true;

2. Reflective: Any bundle is as good as itself (consumer is indifferent between the bundle and itself)

3. Transitivity: e.g. X > Y, Y > Z X > Z

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