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1、Chapter FourUtility效用StructureUtility function (效用函数)DefinitionMonotonic transformation (单调转换)Examples of utility functions and their indifference curvesMarginal utility (边际效用)Marginal rate of substitution 边际替代率MRS after monotonic transformationUtility FunctionsA utility function U(x) represents a p

2、reference relation if and only if: x x” U(x) U(x”) x x” U(x) U(4,1) = U(2,2) = 4.Call these numbers utility levels.pUtility Functions & Indiff. CurvesAn indifference curve contains equally preferred bundles.Equal preference same utility level.Therefore, all bundles in an indifference curve have the

3、same utility level.Utility Functions & Indiff. CurvesSo the bundles (4,1) and (2,2) are in the indiff. curve with utility level U 4But the bundle (2,3) is in the indiff. curve with utility level U 6.On an indifference curve diagram, this preference information looks as follows:Utility Functions & In

4、diff. CurvesU 6U 4(2,3) (2,2) (4,1)x1x2pUtility Functions & Indiff. CurvesComparing more bundles will create a larger collection of all indifference curves and a better description of the consumers preferences.Utility Functions & Indiff. CurvesU 6U 4U 2x1x2Utility Functions & Indiff. CurvesThe colle

5、ction of all indifference curves for a given preference relation is an indifference map.An indifference map is equivalent to a utility function; each is the other.Utility FunctionsThere is no unique utility function representation of a preference relation.Suppose U(x1,x2) = x1x2 represents a prefere

6、nce relation.Again consider the bundles (4,1),(2,3) and (2,2).Utility FunctionsU(x1,x2) = x1x2, soU(2,3) = 6 U(4,1) = U(2,2) = 4;that is, (2,3) (4,1) (2,2).pUtility FunctionsU(x1,x2) = x1x2 (2,3) (4,1) (2,2).Define V = U2.pUtility FunctionsU(x1,x2) = x1x2 (2,3) (4,1) (2,2).Define V = U2.Then V(x1,x2

7、) = x12x22 and V(2,3) = 36 V(4,1) = V(2,2) = 16so again(2,3) (4,1) (2,2).V preserves the same order as U and so represents the same preferences.ppUtility FunctionsU(x1,x2) = x1x2 (2,3) (4,1) (2,2).Define W = 2U + 10.pUtility FunctionsU(x1,x2) = x1x2 (2,3) (4,1) (2,2).Define W = 2U + 10.Then W(x1,x2)

8、 = 2x1x2+10 so W(2,3) = 22 W(4,1) = W(2,2) = 18. Again,(2,3) (4,1) (2,2).W preserves the same order as U and V and so represents the same preferences.ppUtility Functions: Monotonic TransformationIf U is a utility function that represents a preference relation and f is a strictly increasing function,

9、 then V = f(U) is also a utility functionrepresenting . ffGoods, Bads and NeutralsA good is a commodity unit which increases utility (gives a more preferred bundle).A bad is a commodity unit which decreases utility (gives a less preferred bundle).A neutral is a commodity unit which does not change u

10、tility (gives an equally preferred bundle).Goods, Bads and NeutralsUtilityWaterxUnits ofwater aregoodsUnits ofwater arebadsAround x units, a little extra water is a neutral.UtilityfunctionSome Other Utility Functions and Their Indifference CurvesPerfect substitute V(x1,x2) = x1 + x2.Perfect compleme

11、ntW(x1,x2) = minx1,x2Quasi-linearU(x1,x2) = f(x1) + x2Cobb-Douglas Utility FunctionU(x1,x2) = x1a x2bWhat do the indifference curves for these utility functions look like?Perfect Substitution Indifference Curves55991313x1x2x1 + x2 = 5x1 + x2 = 9x1 + x2 = 13All are linear and parallel.V(x1,x2) = x1 +

12、 x2.Perfect Complementarity Indifference Curvesx2x145ominx1,x2 = 8358358minx1,x2 = 5minx1,x2 = 3All are right-angled with vertices on a rayfrom the origin.W(x1,x2) = minx1,x2Quasi-Linear Utility FunctionsA utility function of the form U(x1,x2) = f(x1) + x2is linear in just x2 and is called quasi-lin

13、ear (准线性).E.g. U(x1,x2) = 2x11/2 + x2.Quasi-linear Indifference Curvesx2x1Each curve is a vertically shifted copy of the others.Cobb-Douglas Utility FunctionAny utility function of the form U(x1,x2) = x1a x2bwith a 0 and b 0 is called a Cobb-Douglas utility function.E.g. U(x1,x2) = x11/2 x21/2 (a =

14、b = 1/2) V(x1,x2) = x1 x23 (a = 1, b = 3)Cobb-Douglas Indifference Curvesx2x1Marginal UtilitiesMarginal means “incremental”.The marginal utility of commodity i is the rate-of-change of total utility as the quantity of commodity i consumed changes; i.e. Marginal UtilitiesIf U(x1,x2) = x11/2 x22 thenM

15、arginal Utilities and Marginal Rates-of-SubstitutionThe general equation for an indifference curve is U(x1,x2) k, a constant.Totally differentiating this identity givesMarginal Utilities and Marginal Rates-of-Substitutionrearranged isThis is the MRS.Marg. Utilities & Marg. Rates-of-Substitution; An

16、exampleSuppose U(x1,x2) = x1x2. ThensoMarg. Utilities & Marg. Rates-of-Substitution; An example MRS(1,8) = - 8/1 = -8 MRS(6,6) = - 6/6 = -1.x1x28616U = 8U = 36U(x1,x2) = x1x2;Marg. Rates-of-Substitution for Quasi-linear Utility FunctionsA quasi-linear utility function is of the form U(x1,x2) = f(x1)

17、 + x2.soMarg. Rates-of-Substitution for Quasi-linear Utility Functionsx2x1MRS = - f (x1) does not depend upon x2.MRS is a constantalong any line for which x1 isconstant. MRS =- f(x1)MRS = -f(x1”)x1x1”Monotonic Transformations & Marginal Rates-of-Substitution Applying a monotonic transformation to a

18、utility function representing a preference relation simply creates another utility function representing the same preference relation.What happens to marginal rates-of-substitution when a monotonic transformation is applied?Monotonic Transformations & Marginal Rates-of-SubstitutionFor U(x1,x2) = x1x2 the MRS = - x2/x1.Cr

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