文档介绍：Week 3: Microeconomics II
Course Code: SJ 20303
Topic: Utility and Choice
School of Science & Technology
Outline:
Utility & Assumptions
Voluntary Trade & Indifference Curves
Utility Maximization
Model of Choice
Application
Subtopic 1: Utility & Assumptions
Utility is an essential concept in microeconomics as it represents the pleasure or satisfaction that people obtain from their economic activity.
Utility is directly associated with choice that people make between goods. In essence, the interaction of preferences and constraint that cause people to make choice they do is called the theory of choice.
Continuously,
Ceteris Paribus:
It is a lifelong task to psychologist to identity factors that affect people’s feeling.
In contrast, economists focus on basic and quantifiable factors.
They develop models in which these kinds of factors are held constant and are not specifically analyzed.
They apply the concept of ceteris paribus in analyzing a model, economists treat all other factors constant and unimportant and focus on the change of the factors of interest.
Continuously,
Assume that a consumer received utility from the consumption of two goods, X and Y. The utility function is shown as; Util = U (X, Y; Other things)
Utility is a function of X and Y and other things. In this function, we are interested in studying the change in utility due to the change in X and Y. Other things in the function are treated as constant, which consist of all other factors.
Nevertheless, we used to eliminate the other things term from the function, as util = U(X, Y).
Continuously,
Measuring utility Is a neatly possible task to economists due to two reasons:
The ceteris paribus assumption is difficult to get
The unit of measurement remains weak.
However, economists can study economic choice without such difficulty by imposing the assumption the people have well-defined preference.
EX: Individual A can say whether he prefer good A or good B.
Continuously,
Complete prefere