Handbooks in Central Banking No. 23 CONSUMPTION THEORY Emilio Fernandez-Corugedo Series editors: Andrew Blake & Gill Hammond Issued by the Centre for Central Banking Studies‚ Bank of England‚ London EC2R 8AH E-mail: ccbsinfo@bankofengland.co.uk July 2004 © Bank of England 2004 ISBN 1 85730 143 9 Consumption Theory Emilio Fernandez-Corugedo1 Centre for Central Banking Studies‚ Bank of England 1 This Handbook represents the views and analysis of the author and should not be thought to represent
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side of the market. Utility - amount of satisfaction derived from the consumption of a commodity ….measurement units utils Utility concepts cardinal utility - assumes that we can assign values for utility‚ (Jevons‚ Walras‚ and Marshall). E.g.‚ derive 100 utils from eating a slice of pizza ordinal utility approach - does not assign values‚ instead works with a ranking of preferences. (Pareto‚ Hicks‚ Slutsky) Total utility and marginal utility Total utility (TU) - the overall
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the economy: the necessity of comparative utilities‚ the concern about the distribution and quality of the utility‚ the key social influence
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office hours Feedback? economics204@gmail.com © Sayed Ajaz Hussain‚ Department of Economics University of Toronto‚ STG 2 Today: Consumer Theory Preference relations and “Rational” preferences Commodities and Consumption set Felicity Utility functions Positive monotonic transformation Indifference Curves Marginal Rate of Substitution Feedback? economics204@gmail.com © Sayed Ajaz Hussain‚ Department of Economics University of Toronto‚ STG 3 Some Applications of Consumer
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Andy receives zero utility unless he consumes some of at least one good. The marginal utility that he receives from the two goods is given as follows: |Qp |MUp |Qc |MUc | |1 |12 |1 |24 | |2 |10
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economic activity throughout the supply chain will suffer. One of the fundamental ways that logistics adds value is by creating utility. From an economic standpoint‚ utility represents the value or usefulness that an item or service has in fulfilling a want or need. There are four types of utility: form‚ possession‚ Time‚ and place. The later two‚ time and place utility‚ are intimately supported by logistics. And the below information clarifies how logistics industry already affected economics:
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specific. Then‚ analyze its economic utility‚ using the questions below. a. Describe the good you chose to analyze. (1 sentence. 0.5 points) A gaming computer mouse b. Describe the form utility of this good. Is the form utility good or bad? Can you think of ways to improve it? (2-5 sentences. 1.0 points) It is good. It moves smoothly and has extra buttons on the side for better use and mobility. c. Describe the place utility of this good. Is the place utility good or bad? Can you think of
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Econ 101: Principles of Microeconomics Ch. 10: The Rational Consumer Fall 2010 Herriges (ISU) Chapter 10: The Rational Consumer Fall 2010 1 / 28 Outline 1 Utility: Getting Satisfaction 2 Budgets and Optimal Consumption 3 The Optimal Consumption Choice 4 Spending the Marginal Dollar 5 From Utility to the Demand Curve Herriges (ISU) Chapter 10: The Rational Consumer Fall 2010 2 / 28 The Rational Consumer One of the key assumptions underlying economics is the concept of the rational
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insead.edu/vanzandt Table of Contents 1 Choosing among Uncertain Prospects 1.1 Introduction to decision theory . . . . . . . . . . . . . . . . . . . . . . . 1.2 Lotteries and objective expected utility . . . . . . . . . . . . . . . . . . . 1.3 States of nature and subjective expected utility . . . . . . . . . . . . . . 2 Choosing when there is new information 2.1 Representing information . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Bayes’ Theorem . . . . . . . . . . . . . . . .
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consistent between all people. 2. Why is the utility theory applied to consumer choice theory silent about comparing people’s utility levels? The utility theory is silent because utility levels cannot be compared. The utility level of any person can be multiplied by any number without personal preferences changing; therefore‚ the utilities of different people cannot be compared. One person does not have a higher or lower level than someone else. Utility levels are only capable of measuring preferences
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