ECON 100A Lecture Notes - Lecture 2: Cardinal Utility, Ordinal Utility, Utility
Document Summary
A > b (a is preferred to b) A ~ b (indifferent between a and b) A > b (a is at least as good as b) A > b or b > a or a ~ b = strict preference. A > b and not b > a. B > a and not a > b. If a > b and b > c, the a > c. If a ~ b and b ~ c, the a ~ c. Monotonicity: more is better [we would choose point b] A formula that assigns a numerical score (utility) to individual baskets or bundles. Example of utility function: u(x,y) = xy x = 5, y = 3 x = 2, y = 9 u(5,3) = 15 u(2,9) = 18 (optimal) Other examples: u(x,y) = x + y; **u(x,y) = x y (cobb-douglass) Ordinal utility function that generates a ranking of baskets in order of most to least preferred.
