MGT 621 – Microeconomics
1. Theory of Choice
Lecture Notes (Overheads Used In Class)
· Pindyck/Rubinfeld, Ch. 3
· Think about the decision of buying a car or a bicycle: Write down a choice set X with at least 5 different elements.
· Describe your preferences by defining a complete partial order over all options in X.
· Draw iso-utility curves between options you are indifferent over.
· Which of these options can you afford? Mark the corresponding subset B of X.
· Determine your best affordable choices.
· Represent your preferences on X using a utility function u:XàR.
· Describe the above decision process in terms of a utility maximization problem.
Background Reading (for future reference only)
· Debreu, G. (1959) Theory of Value: An Axiomatic Analysis of Economic Equilibrium, Yale University Press, New Haven, CT; Ch. 1.
· Kreps, D.M. (1988) Notes on the Theory of Choice, Westview Press, Boulder, CO; Chs. 1—3.