ECO206Y1 Lecture Notes - Indifference Curve, Utility, Lincoln Near-Earth Asteroid Research

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16 Oct 2011
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Topic 2 utility & indifference curve (lecture 2 sept 21st) Utility function: cu = u(x1, x2, x3, , xn) Math representation of preference ordering: x>y u(x)>u(y, x y u(x)=u(y) * numbers in the utility function are ordinal not cardinal * From the utility function, we only know the order of the preference (whether x is before y), not the strength of the preference (whether the utility of x is 3 times greater than y) * these utility functions are only unique to a positive monotonic transformation . e. g. v[u(x) = [u(x)]2. All these are examples of positive monotonic transformation of the utility function; The preference order is the same: set of commodity bundles that satisfies u(x1, x2) = uo (some level of utility) Indifference set/curve x2 x1: total differentiate u(x1, x2) = uo . - indifference curve pass to the right indicate higher utility (assume more is better )

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