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Lectures in Microeconomics-Charles W. Upton The Theory of Choice
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Theory of Choice Basic Model of Choice
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The Theory of Choice Theory of Choice Basic Model of Choice Some Simple Illustrations
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The Theory of Choice The Basic Model Suppose an individual is asked to choose among the following
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The Theory of Choice The Basic Model Suppose an individual is asked to choose among the following
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The Theory of Choice The Basic Model Suppose an individual is asked to choose among the following We make some basic assumptions about how the choice will be made
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The Theory of Choice Assumption of Completeness I prefer Basket A to Basket B
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The Theory of Choice Assumption of Completeness I prefer Basket A to Basket B I prefer Basket B to Basket A
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The Theory of Choice Assumption of Completeness I prefer Basket A to Basket B I prefer Basket B to Basket A I am indifferent. The two are equally attractive.
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The Theory of Choice Assumption of Completeness I prefer Basket A to Basket B I prefer Basket B to Basket A I am indifferent. The two are equally attractive. I don’t know Neither
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The Theory of Choice Assumption of Transitivity If A is preferred to B and B is preferred to C Then A is preferred to C
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The Theory of Choice More is Better than Less If Basket A contains more than Basket B, then A is preferred to B
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The Theory of Choice More is Better than Less If Basket A contains more than Basket B, then A is preferred to B –Basket A: 3 Apples, 2 Bananas –Basket B: 2 Apples, 2 Bananas A >B
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The Theory of Choice More is Better than Less If Basket A contains more than Basket B, then A is preferred to B –Basket A: 3 Apples, 2 Bananas –Basket B: 2 Apples, 2 Bananas A >B
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The Theory of Choice Utility Functions The assumptions mean that individuals have a utility function U(A, B)
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The Theory of Choice Utility Functions The assumptions mean that individuals have a utility function U(A, B) The function gives the “utility” for different combinations of (say) apples and bananas
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The Theory of Choice Utility Functions The assumptions mean that individuals have a utility function U(A, B) The function gives the “utility” for different combinations of (say) apples and bananas If U(A 1,B 1 ) > U(A 2,B 2 ) (A 1,B 1 ) is preferred to (A 2,B 2 )
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The Theory of Choice An Example U= AB
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The Theory of Choice An Example U= AB
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The Theory of Choice An Example U= AB
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The Theory of Choice An Example U= AB
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The Theory of Choice An Example U= AB D > C > B = A
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The Theory of Choice Modifying the Example U= (AB) 2 D > C > B = A
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The Theory of Choice Ordinality U(Basket A) = 10 U(Basket B) = 7
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The Theory of Choice Ordinality U(Basket A) = 10 U(Basket B) = 7 A >B
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The Theory of Choice Ordinality U(Basket A) = 10 U(Basket B) = 7 A >B Period!
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The Theory of Choice End ©2004 Charles W. Upton
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