BEPP 250 Lecture Notes - Lecture 3: Opportunity Cost, Utility, Indifference Curve
19 Feb 2015
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Bepp 250: business & economic public policy - lecture 3: consumer theory. In a bundle, a consumer chooses the quantities of n goods to consume. A bundle x is a vector quantity of each good. X = (x1 + x2 + x3 + x4 + x5 xn) Ex) x = x1 + x2 = (2, 3) Bundles represent the concept of tradeoffs, for example: Crime: probability of going to jail & money spent on other goods. Labor supply: time spent playing fifa & money to spend on other goods. Human capital investments: time spent partying & time spent studying. They must have a preference: a>b, ab & b>c, then a>c dsddd. Utility is always ordinal (ie. the ranking matters, not the numerical values) For instance: what matters in the below example is that ferrari has a higher utility than mercedes, which has a higher utility than blueberries, not the actual numbers.
