Chapter ThreePreferences 消费者偏好Where Are We in the Course?u We are studying the 1st of the three blocks of microeconomics: Consumer behavior, production theory, and market equilibriumuWithin the 1st block, we are working on the 2nd of the three components: choice set, preference, and consumer demandWhat Do We Mean by Preference? (偏好)u It refers to the ordered relationship among alternative choices given by an economic agent.u In most economic literature, consumer preference is treated as the ultimate exogenous element.Preference RelationsuComparing two different consumption bundles, x and y: strict preference: x is more preferred than is y. weak preference: x is as at least as preferred as is y. Indifference: x is exactly as preferred as is y.Notationsu denotes strict preference; u denotes indifference; u denotes weak preference;pfPreference Relationsux y and y x imply x y.ux y and (not y x) imply x y.ffffpAssumptions about Preference RelationsuCompleteness: For any two bundles x and y it is always possible to make the statement that either x y ory x.ffAssumptions about Preference RelationsuReflexivity: Any bundle x is always at least as preferred as itself; i.e.x x.fAssumptions about Preference RelationsuTransitivity: If x is at least as preferred as y, and y is at least as preferred as z, then x is at least as preferred as z; i.e.x y and y z x z.fffIndifference Curves 无差异曲线 (或,无差异集)uTake a reference bundle x. The set of all bundles equally preferred to x is the indifference curve containing x; the set of all bundles y x.uSince an indifference “curve” is not always a curve a better name might be an indifference “set”.Indifference Curvesx x2 2x x1 1x”x”x”x”x x x” x” x” x”xIndifference Curvesx x2 2x x1 1z z x x y yppxyzIndifference Curvesx2x1xAll bundles in I1 are strictly preferred to all in I2.yzAll bundles in I2 are strictly preferred toall in I3.I1I2I3Indifference Curvesx2x1WP(x), the set ofbundles weaklypreferred to x.WP(x)includesI(x).xI(x)Indifference Curvesx2x1SP(x), the set ofbundles strictlypreferred to x,does notincludeI(x).xI(x)Indifference Curves Cannot Intersect ! (不相交!)x x2 2x x1 1x x y y z zI I1 1I2From IFrom I1 1, x , x y. From I y. From I2 2, x , x z. z. Therefore y Therefore y z. z.Indifference Curves Cannot Intersectx x2 2x x1 1x x y y z zI I1 1I2From IFrom I1 1, x , x y. From I y. From I2 2, x , x z. z. Therefore y Therefore y z. But from I z. But from I1 1and Iand I2 2we see y z, a we see y z, a contradiction. contradiction.pSlopes of Indifference CurvesuWhen more of a commodity is always preferred, the commodity is a good.uIf every commodity is a good then indifference curves are negatively sloped.Slopes of Indifference CurvesBetterBetterWorseWorseGood 2Good 2Good 1Good 1Two goodsTwo goods a negatively sloped a negatively sloped indifference curve.indifference curve.Slopes of Indifference CurvesuIf less of a commodity is always preferred then the commodity is a bad.Slopes of Indifference CurvesBetterBetterWorseWorseGood 2Good 2Bad 1Bad 1One good and oneOne good and one bad a bad a positively sloped positively sloped indifference curve.indifference curve.Extreme Cases of Indifference Curves; Perfect SubstitutesuIf a consumer always regards units of commodities 1 and 2 as equivalent, then the commodities are perfect substitutes and only the sum of the two commodities in bundles determines their preference rank- order. Extreme Cases of Indifference Curves; Perfect Substitutesx x2 2x x1 18 88 815151515Slopes are constant at - 1.Slopes are constant at - 1.I2I1Bundles in IBundles in I2 2all have a total all have a total of 15 units and are strictlyof 15 units and are strictly preferred to all bundles inpreferred to all bundles inI I1 1, which have a total of, which have a total ofonly 8 units in them. only 8 units in them.Extreme Cases of Indifference Curves; Perfect ComplementsuIf a consumer always consumes commodities 1 and 2 in fixed proportion (e.g. one-to-one), then the commodities are perfect complements and only the number of pairs of units of the two commodities determines the preference rank-order of bundles. Extreme Cases of Indifference Curves; Perfect Complementsx x2 2x x1 1I2I14545o o5 59 95 59 9Since each of (5,5), (5,9) and (9,5) contains 5 pairs, each is less preferred than the bundle (9,9) which contains 9 pairs. Preferences Exhibiting SatiationuA bundle strictly preferred to any other is a satiation point or a bliss point.uWhat do indifference curves look like for preferences exhibiting satiation?Indifference Curves Exhibiting Satiationx x2 2x x1 1BetterBetterBetterBetterBetterBetterSatiationSatiation (bliss)(bliss) pointpointIndifference Curves for Discrete CommoditiesuA commodity is infinitely divi