THEORETICAL FOUNDAMENTS:

Transcription

1 CONSUMER EHVIOUR THEME PROLEMS: cardinal model of choice aioms of ordinal theor of choice indifference relations and budgetar constraint marginal rate of substitution between goods optimum of the consumer in the ordinal utilit conditions income-consumption curves THEORETICL FOUNDMENTS: Relations of indifference for consumer are given b all the possible combinations for different quantities of goods correspondent of each level of the total utilit. For two goods (or basket of goods) it is about one famil of indifference curves. Indifference curve of the consumer (iso-utilit) is given b all the combinations between different quantities of two goods that provide the same level of satisfaction (total utilit). Marginal rate of substitution between goods the additional quantit that should be consumed in order to compensate the reduction with one unit the consumed quantit from a different good so that the total utilit will remain the same. Obviousl this quantit is determined b the comparison between the marginal utilities of those two goods. udgetar constraint of consumer all the possibilities of acquisitions of different quantities from wanted in the limit of the available income of the consumer. The budgetar constraint in the particular case of two goods is epressed b the budgetar line. The budgetar line of the consumer all the maimum combinations from two goods that can be bought with the available sum of mone that one consumer has at a certain moment. t each level of income we have one budgetar line.

2 1. Describe the ordinal model of choice using the net elements: - ioms of ordinal choice - Relations of indifference of consumer - Marginal rate of substitution between goods - udgetar constraint of consumption - Equilibrium in conditions of ordinal utilit theor 2. nalze the aioms of ordinal theor of choice: a) comparabilit b) refleivit c) transitivit d) non saturation e) continuit f) conveit 3. Comment on the net graphs: ) ) o U 4 1 U T 2 U 3 U 1 C) o 1 - C + 1 α

3 D) E) q 1 lei 4 lei 3 lei F) q M. R O. O P O N U 1 U 3 4. Indifference curves never intersect. Eplain i I i U 1

4 5. nalze the net figures: U 3 U 1 U 1 N E E N M E N E N E N nalze the alternatives of a consumer in a double constraint situation: budgetar (possibilities of acquisitions) and time limit: E 1 N 2 q X () udgetar constraint () q X (t) I Time limit (t) q Y () q Y (t) 7. Discuss the following particular cases of indifference curves:

5 RELTIONS, EXMPLES ND MODELS: 1. Formulas: Marginal rate of substitution between goods: SOLVED EXERCISES: 1 C ) MRS = = tg(18 ) m = C = α = = ) 1 ) MRS = = ) 1. If in the net graph q = 6 pcs., and the optimum for the consumer is 4 units from and 4 units from, then: q ) What is the income of the consumer if p is 12 m.u.? ) What is the maimum quantit from that can be bought and at what price? C) What will be the quantit from that one consumer at the optimum point is willing to give up to from? D) What about the quantit from for one additional unit from? Solution: ) TR = p *q (ma) = 12*6 = 72 (m.u.) ) t the optimum point: TR = p *q + p *q From where: p = (TR - p *q ) / q p = (66-12*4) / 7 = 24 / 6 = 4 (m.u.) q (ma) = TR / p = 72 / 4 = 18 (pcs.) C) q ) MRS = q = ) q

6 Optimum condition: ) ) =, so that: p p ) p = p 12 = MRS = = 3 ) p p 4 That means: 3 units = 1 units D) q ) p 4 MRS = = = = =, 25 q ) p 12 That means:,25 units = 1 units To be solved: 1. Individual utilit of two goods ( and ) are shown in the table below: - utili - Quantit(units) Prod Prod U T () U T () ) State the combinations between 2 goods that will provide to the consumer a total utilit of 1. ) Make the graphical situation using one indifference curve C) Regardless the price of the products which will be the preferred order of consumption? D) What is the maimum total utilit that can be obtained in this case and what is the saturation point? 2. The utilit of some goods measured in units is shown below: - în utili - Food Clothes Drinks C Hgiene D Shelter E Unit u 1 u 2 u C 1 u D 12 u E (-3) (-2)

7 ) Regardless the price, state the order of the first 1 acquisitions? ) If the price of those goods are: food and drinks 1 m.u./unit, clothes 2 m.u./unit, hgiene 12. m.u./unit and shelter 5 m.u./unit? C) What if all prices are equal with 1 m.u. 3. Individual utilities of different quantities from and are shown in the table below. Considering that the prices are: 5 (m.u.) for and 1 m.u. for : ) What quantities will the consumer bu if he has 1 m.u.? ) What will be the case is the budget is 55 m.u.? Quantit Prod Prod The initial budget line for two goods is: q = 2-4q where q and q are quantities from those two goods. This is for the situation in which the price for is5 m.u./unit If the price will drop to 4 m.u. what will be the budgetar equation line? 5. If the entire available income is used for buing one single good in a quantit of 8 units at the price of 1.5 m.u. each. In the condition of budgetar constraint with two possible acquisitions, what will be the price of the other good knowing that the quantit possible to be bought is 6 units? State the budgetar equation. 6. The total utilit brought b the consumption of two goods ( and ) that are the alternatives in consumption for one individual can be epressed b the net functions: U T () = 1q - (q 2 /2) U T () = 22q - q 2 ) If the price for is 1 m.u., and the one for is 2 m.u., what will be the amount bought from those two goods is the available income is 14 m.u.?

8 ) Care ar fi ordinea de preferinţe pentru primele 7 achiziţii dacă preţul ar fi de 2 m.u. pentru ambele bunuri? Care ar fi suma necesară pentru cumpărarea lor? 7. The total utilit obtained with the consumption of two goods can be epressed with the function: U T (,) = 6q + 2q If in the initial moment the consumption was 1 units from and 2 units from, and now the available quantit from is 14 units: ) What quantit from should be consumed so that we maintain the same level of satisfaction? ) What is the marginal rate of substitution in this case? 8. If in the net graph q = 3 units, and the optimum point for the consumer is 2 units from and 35 from, then: ) What is the income of the consumer is the price for is 1.5 m.u.? ) What will be the maimum quantit from that can be bought and at what price? C) What will be the quantit from that a consumer being at the optimum point is willing to give up to for an additional unit from? q q

9 9. The utilit function for a consumer is: U T (, ) = q *q If the consumer is using 3 units from and the marginal rate of substitution is 1.5. What will be the marginal utilit of those two goods? 1. In the case of a function as in the previous eample and knowing that: p = 1 m.u., p = 2 m.u. and the income of the consumer is 48 m.u., to be solved: ) Make the indifference curves for U T (, ) = 4 and 12. ) State the optimum combination C) What is the marginal rate of substitution in the optimum point? 11. The utilit function for a consumer is : U T (, ) = q *q 2 if p = 1, p = 2 and the income of the consumer is 48 m.u., to be found out: ) State the optimum combination ) What is the marginal rate of substitution in the optimum point?