Consumer Preferences

1
Consumer Preferences

• Completeness
• Transitivity
• More is Better

2
Indifference Curves

• A set of bundles of goods that the consumer views
  as equally desirable
• Shape
• negatively sloped
• convex
• What does the slope tell us?

3
Questions

• Can indifference curves intersect?
• Can indifference curves be thick?
• Can indifference curves be upward sloping?
• Can indifference curves be linear?
• Can indifference curves be horizontal?
• Can indifference curves be vertical?

4
Utility functions

• U f(x, y)
• Examples
• U x1/2 y1/2
• U x y
• Graph an indifference curve
• Calculate slope

5
Budget Line

• Shows the amounts of x and y that can be
  purchased with a given level of income
• What does the slope tell us?
• What happens when prices and or income change?

6
Constrained Utility Maximization

• Reach the highest indifference curve possible
• This occurs when the budget line is tangent to an
  indifference curve