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facing
the
Hypotheses
of
choice are following:
consumers
Ordinal
approach
(neoclassical)
position of cardinal
theory:
Types of utility:
Total utility is the total satisfaction received from
consuming an amount of goods.
The utility function has the following form:
TU f QX i
MU Q X i
TU
Q X i
Consumed
quantity of a
specific good Qx
20
35
45
50
50
45
Marginal utility
(utile) Mux
20
15
10
5
0
-5
Qx (quantity)
MU X MU Y
MU Z
...
PX
PY
PZ
Juice
Pizza
Amount of
consumed
goods (Q)
MU
MU/P
MU
MU/P
1
2
3
4
5
6
6
5
4
3
2
1
6/10=0,6
0,5
0,4
0,3
0,2
0,1
10
8
7
5
4
3
10/20=0,5
0,4
0,35
0,25
0,2
0,15
B);
A);
Prefered
relations
Indiferent
relations
B and B C A
C.
Indifference
curve
shows
alternative combinations of two
economic boons, that give the
consumer equal utility
(TU) or
satisfaction.
An indifference curve is the set of points
representing market basket among which the
concumer is indifferent.
What is preferable ?
Cake
10
Marke
tbasket
a
b
c
d
X
(Cola, un.)
1
2
6
8
Y
(cake, un.)
8
6
2
1
2
1
X
0
1 2
Indifference curve
Cola
What is preferable ?
YC
YB
U3
U2
YA
U1
XB
XC
XA
Properties
curves:
of
indifference
2. Indifference curves
never intersect.
can
A
YC
YB
C
U1
U2
XB
XC
Y
(apples)
A
Y
B
C
X
(pears)
MRS xy
QX
TU const.
or
MU x
MRS xy
MU y
U2
U1
X
Y
U
5
U
4 U
3
U
2
U
1
Y
U
1
U
2
U
3
What is attainable ?
A
I/Py
B
0
I/Px
I Px QX Py QY
Px
I
Qr
QX
Py Py
Py
I
Qx
Qy
Px Px
I
OB
Py
Px
Cake
Y
10
(O,I/Py)
F
0
(I/Px ,O)
6
X
Cola
Cake
14
a) Consequences of changes
consumers disposable income
I, Px, Py constant
(Px=6 lei, Py=3 lei)
I =30 lei
10 A
I =42 lei
I2 =21 lei
N
3,5
F
5
K
7
in
Cola
Cake
10
Px
Px =6 lei
F
5
1
0
X
Cola
Cake
Y
10 A
Px =6 lei
Px =12 lei
N
2,
5
F
5
X
Cola
PROBLEM
GRAPHICAL
INTERPRETATION
What want
consumers?
Prefferences
Indifference
Map
What can
consumers?
Constraints
Budget line
What do
consumers?
Point of
optimal choice
equilibrium of
of consumer
consumer
MU x
Px
MU x Px
MU x MU y
sau
MU y
Py
MU y Py
Px
Py
The consumers equilibrium condition
requires that the ratio of marginal utilities of
goods X and Y is equal to the prices ratio.
Y
10 A
Cake
a
E
2
1
F
0
1 2
U3
U2
U1
X
Cola
Y
M
E2
C
A
E1
U3
U2
U1
X1
X0
X2
E2
I2
I0
I1
E1
X1
X0
X2
U2
U1
U3
U2
U1
O
Y
d
U3
U2
U1
Y
d
U3
U2
U1
Consumption
expenditures
Income of
households
The part of
expenditures
for food in the
family budget
in %.
Y1
Y0
E1
E2
E0
Y2
U1
X1
P1
U2
X0
X2
E1
E0
P0
P2
X1
X0
E2
X2
U3
Cake
1
0
9
8
7
6
5
4
I=30 lei
Px=6 lei
M
b
I=21 lei
Px=3 lei
3
2
1
I=30 lei
Px=3 lei
1 2
3 4 5
7 8
H
9 10
Cola
water
The Value of time
Cash and noncash gift-giving
Price
Price
10
9
8
10
9
Surplus of
consumer
Market price
7
6
2
1
0 1 2 3 4 5 6
a) Individual demand
Surplus of
consumer
2
1