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Lecture

Topic 1 - Preferences Preference.


Department
Economics
Course Code
ECO206Y1
Professor
Loren Brandt

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Topic 1 Preference
(Lecture 2 Sept 21st)
Puzzles (intro to consumer choices)
1. Individuals in need receive vouchers (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
-- XY 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 XY 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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