,Chapter 4 THE THEORY OF CONSUMER CHOICE,People face trade-offs. The theory of consumer choice examines how consumers facing these trade-offs make decisions and how they respond to changes in their environment. 如何做出选择，如何对环境的变化做出反应,The Budget Constraint: what the consumer can afford,Suppose the consumer has an income of $1,000 per month and he spends his entire income on pizza and Pepsi. 假定收入1000美元，花费全部收入 The price of a pizza is $10, and the price of a pint of Pepsi is $2. If the consumer spends all his income on pizza, how much pizzas he can eat during the month? 全部购买比萨饼，能吃多少？ If the consumer spends all his income on Pepsi, how much Pepsi he can drink during the month? 全部购买百事可乐，能喝多少？,Budget constraint,0,500,300,20,40,100,B,Quantity of Pepsi,Quantity of Pizza,400,Budget constraint means the limit on the consumption bundles that a consumer can afford.,预算约束线指对消费者可以支付得起的消费组合的限制。,Budget constraint,The slope of the budget constraint equals,Quantity of Pizza,0,D,500,300,200,20,40,60,100,B,C,Quantity of Pepsi,400,The slope of the budget constraint,the opportunity cost of one good measured by the other good.机会成本,the rate at which the consumer can trade one good for the other. 交换比率,the relative price of the two goodsthe price of one good compared to the price of the other. 两种商品的相对价格,The equation of budget constraint,0,Quantity of X2,Quantity of X1,I=P1X1+P2X2,Consumers income: I,Two kinds of goods: X1 ,X2,Shifts in the budget constraint,If the income increases form $ 1000 to $ 1100,an increase in income leads to a parallel shift in the budget constraint 平行移动,Quantity of Pizza,0,D,500,300,200,20,40,60,100,B,C,Quantity of Pepsi,400,If the price of Pepsi rises from $2 to $4 per pint.,Quantity of Pizza,0,D,500,300,200,20,40,60,100,B,C,Quantity of Pepsi,400,a rise in the price of any good shifts the budget constraint inward.向里转动,250,Shifts in the budget constraint,Preferences: what the consumer wants,Market bundle (or basket) refers to a list with specific quantities of one or more goods. 商品束指一种或几种商品的特定组合 Preference means desire or liking for one thing rather than another. 偏好意味着对一件东西比另一件更喜欢。,Some basic assumptions about preferences,Preference are assumed to be complete.完备性 For any two bundle A and B, a consumer will prefer A to B (AB) , will prefer B to A (BA), or will be indifferent between the two (A=B). Preference are transitive.传递性 If AB，and BC Then AC More is better than less. Goods are assumed to be good, 非饱和性 if A(X1，Y1)，B(X1，Y2)，and Y1Y2 Then AB,Representing preferences with indifference curves,Quantity of Pizza,0,A,B,C,Quantity of Pepsi,Indifference curve is a curve that shows consumption bundles that give the consumer the same level of satisfaction 无差异曲线一条表示给消费者相同满意程度的消费 组合的曲线,The slope at any point on an indifference curve equals the Marginal rate of substitution , which is the rate at which a consumer is willing to trade one good for another.,Quantity of X1,0,B,C,Quantity of X2,无差异曲线上任意一点的斜率表示边际替代率，即指消费者愿意以一种物品交换另一种物品的比率。,Marginal rate of substitution,Four properties of indifference curves,Property 1: Higher indifference curves are preferred to lower ones.对较高无差异曲线的偏好大于较低的,Quantity of Pizza,0,Quantity of Pepsi,A,B,C,D,y1,x1,x2,Consumers usually prefer more of something to less of it.,I1,I2,Property 2: Indifference curves are downward sloping.右下方倾斜,Four properties of indifference curves,Quantity of Pizza,0,Quantity of Pepsi,A,C,y1,x1,x2,y2,Property 3: Indifference curves do not cross.不相交,Four properties of indifference curves,I1,I2,B,A,C,Quantity of Pepsi,Quantity of Pizza,0,y1,y2,x1,x2,I1: A and B equally happy I2: B and C equally happy A and C would make the consumer equally happy,But A has more of both goods compared to C.,Property 4: Indifference curves are bowed inward. 凸向原点,Four properties of indifference curves,0,D,C,B,Quantity of Pepsi,Quantity of Pizza,From D to C MRS=4,1,2,3,4,8,4,2,2.5,From B to A MRS=0.5,A,People are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little.愿意用多的去交换少的，不愿意用少的交换多的商品,The MRS diminishes along the curve.边际替代率递减,Two extreme examples of indifference curves,Perfect Substitutes : two goods with straight line indifference curves完全替代品，无差异曲线是直线 the marginal rate of substitution is constant 边际替代率是常数,I1 I2 I3,milk,1 2 3,3,2,1,0,coffee,Perfect Complements: two goods with right angle indifference curves. 完全互补品，直角形无差异曲线,I1,I2,spectacle glass 眼镜片,spectacle frame 眼镜架,0,1 2 3 4,2,1,Optimization: what the consumer chooses,Consumers want to get the combination of goods on the highest possible indifference curve.最高可能无差异曲线上 However, the consumer must also end up on or below his budget constraint.必须达到或低于预算约束线,The highest indifference curve that the consumer can reach is the one that just barely touches his budget constraint. The point at which this indiffer