M B A 8620 Chapter Notes - Chapter 4: Utility, Indifference Curve

• School: Clemson University
• Department: Business Administration
• Course: M B A 8620
• Professor: Ron Gregory

Document Summary

Economists use the theory consumer choice to derive demand curves from it. Premises or assumptions: tastes or preferences determine satisfaction, constraints particularly due to consumer"s budgets, maximize satisfaction with what they have. Indiference is allowed but indecision is not: transitivity. A to b and b to c, then, a to c (prefer and/or indifferent: more is better (nonsatiation) A preference map can be used to understand consumer choice by: defining first more is better, then drawing indifference curve using transitivity to understand equal good for the consumer, all maps must have the following properties: Indifference curves further from the origin are preferred. An indifference curve goes through every single bundle. Willingnes to substitute between goods: mrs: marginal rate of substitution, mrs = (good#1 on axis y)/ (good#2 on ax. Set of numerical values that reflect the relative ranking o various bundles of goods: example: consuming bundle x gives lorna more utility than consuming bundle y .