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Lecture notes

Lecture 2 notes Microeconomics (BFE0020)

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This document summarizes Lecture 2 on utility functions and consumer behavior in microeconomics, designed to help with exam preparation. It explains how consumers make choices to maximize their satisfaction (utility) with the resources they have. Key topics include the utility function, which shows...

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  • October 7, 2024
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Microeconomics- Lecture 2

Consumer Theory-Utility Function and Consumer Theory:

Rationale choice theory: Axioms of rational choice

 Consumers develop their actions study consumer behavior
 Behavior focused on consumption of goods and services determined by preferences of
individuals
 Preference person declares her orders A to B


Preferences-

 I prefer A to B always comparing two or more goods completeness A/B two situations
indifferent
 A and B attractive indifferent both goods are equal


Axiom- statement taken to be true further reasoning can be done

Completeness- always have an opinion

Continuity- if an individual claims that A is preferable to B than situations close to A will be
preferable to B for example good A which is coke will be more preferred than good B which is
Fanta.

Transivity-indivdiual prefers A to B prefers B to C prefers A to C.

 Two goods reduce quantity of them always find an increase in quantity of the other
exactly compensates for it

Exhange and Substitution

Basket- is a grouping of goods X and Y consumers following basket E.

 Point A represents a basket of goods X and Y.
 The indifference curve represents all baskets.

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