This is why I want to go to a great school like this one. Not because I'm some kind of genius, but because I think, with the right teacher, anyone can be a genius. And at schools like MIT, every teacher is equipped to teach effectively.
Notes: Demand curve - how consumers make choices Decision making - Utility maximisation. Consumer preferences - what people want and budget constraints - what they can afford. Step 1 - Preferences - how do we model people’s taste - Unconstrained choices, money is no object, how do we think about what we want. Preference assumptions. Models are based on simplifying assumptions. Are they roughly consistent with reality or not? Completeness - We have preferences over any set of goods we choose from. Can’t say I don’t know how I feel about this. Transitivity - If we prefer A to B and we prefer B to C then we prefer A to C. Non-satiation/More is better - More is always better than less. Graph of people’s preferences. Indifference curves. Graphical maps of preferences. Suppose parents gave money before semester. Spent on two things - buying pizza or eating cookies. 2 dimensional decision case. Consider 3 choices A. 2 pizzas and 1 cookie B. 1 pizza and 2 cookies C. 2 pizzas and 2 cookies. Assume - We are indifferent between these packages. Equally happy with all the packages. And also assume we prefer option C as more is better.
One indifference curve between A & B because those are the points among which you’re indifferent. Indifference curve represents all combinations of consumption among which you are indifferent. You are indifferent between A & B and therefore they lie on the same curve. 4 properties that you have to follow from these assumptions: Prop 1 - Consumers prefer higher indifference curves = More is better. Package that has at least more of 1 thing than the other so you prefer it. As the curve shifts out you are happier because more is better Prop 2 - Indifference curves are downward sloping. Comes from Principle of non-satiation.
Why does it violate the principle of non-satiation? You cannot be Indifferent about 1 of each or 2 of each. Prop 3 - Indifference curves never cross.
Because in B & C, B is strictly better but they’re also on the same curve as A. You’re indifferent with A for both B & C but you can’t be indifferent between B & C because B is strictly better than C. Indifference curves crossing violates transitivity. Prop 4 - Only 1 indifference curve through every possible consumption model/ Only one indifference curve through every bundle. You can’t have 2 indifference curves in the same bundle because of Completeness. If this did happen you wouldn’t know how you felt. You may feel indifferent but you can’t say you don’t know how you feel. Example - year op as a grad student who had to decide where he would accept the job. I am indifferent but I care about 2 things - school location and economics department quality (quality of my colleagues and the research that’s done there) One is from Princeton and the other is Santa Cruz (not as good as economics department). 3rd offer - IMF research institution in DC and had a lot of good colleague and DC is way better than Princeton. Worst quality than Princeton and worst location than Santa Cruz but it was still better in combination than these two institutions. Utility Functions - Mathematical representation - Every individual has a stable well behaved underlying mathematical representation of your preferences which we call utility function. 2 dimension - how do we mathematically represent between pizza vs cookies. Utility function is no. of slices of pizza vs no. of cookies. U√P*C. What is Utility? It doesn’t mean anything. Its not a cardinal but an ordinal concept. Assume you can rank your choices in many dimensions. Weigh different assumptions so you can rank them when you need to choose. Marginal utility - 1 cookie and then the value or utility of the next cookie. Marginal decisions. Once you eat an cookie, do you want the next unit/cookie/pizza? Key feature - Diminishing Marginal Utility - the more of you’ve had of a good the less you would want the next unit.
No. of cookies holding constant pizza. If you’re having 2 pizza slices and you want to say what’s my benefit from the next cookie. Left axis - violating the above we graph utility. Eg. If you have 1 cookie your utility is 1.4; square root of 2 times 1. If you have 2 cookies the utility goes up = square root of 4 which is 2. You’re happier with 2 cookies but you are less happy with the second cookie as you were with the first cookie.
The 1st cookie gave you 1.14 utility. What’s your happiness is measured in this graph of marginal utility. The next cookie’s utility is 2.059. Each additional cookie makes you less and less happy. Makes you happy as more is better but less happy as the 1st cookie. Remember you always want more cookies. You can say that the 11th will make you barf. But in economics you can give it away or save it for later, worst case you can throw it out, but you always think more is better. Utility function can never be negative, as its an ordinal concept, and is always positive as you get some benefit from the next unit. Indifference curves are the graphical representation of what comes out of utility function. Slope of the indifference curve is called marginal rate of substitution. The rate at which you’re willing to substitute one good for another. Substitute cookies for pizza. dp÷dc = marginal rate of substitution.
I am indifferent between point A & B. Over here 1 slice of pizza = 1 cookie. Marginal rate of substitution is -2. I am ready to give 2 pizzas for 1 cookie. When we move from B to C the MRS is -½. Now I’m willing to give only 1 slice of pizza for 2 cookie, because we don’t want cookie as much due to diminishing marginally utility. MRS is always diminishing, it has to. Slope will always be falling. How MRS relates utility function; MRS=DP÷DC= -MUc÷MUp (c - cookie and p - pizza). MRS tells you how relative marginal utility evolves as you move down the indifference curve. When you start at point A, you have lots of pizza and not a lot of cookies; here your marginal utility is small. Marginal utility are negative functions of quality, the more you have it the less you want it. As you move along the indifference curve, you’re more willing to give up the good on the x-axis to get the good on the y-axis. Implies that indifference curves are convex to the origin. They’re not concave, they’re either convex or straight. It can be linear.
What would happen if indifferent curves were concave to the origin? From point A to B leaves you indifferent so You can give 1 slice of pizza to get 1 cookie, starting to give 4 pizzas for 1 cookie. From 2 and 3 you are willing to give 2 pizzas for 1 cookie. This violates principle of MU and MRS as pizzas should be more valuable as you have less pizza now. Addictive decisions - Smoking. Utility function shifts as you get more addictive. The next will be still be worth less. But as we’re addicted the first cigarette will be worth more and more to you. When you wake up feeling crappy the first cigarette will be good to you but the next morning you wake up feeling crappier and wanting the first cigarette more as people get habituated to certain levels. For drugs its not about diminishing MU but different underlying products used in the drug. Example - Prices of different sizes of goods. Starbuck tall coffee for $2.25 and the next one for 70 more cents. McDonald - Small is $1.22 but for 50 more cents you can double the size. Why do they give twice as much for much less than twice as much money? Its all about diminishing MU, you’re desperate for the first soda on a hot day, but not twice as much for the next glass. Those prices reflect market’s reaction to diminishing MU. If you think about demand and supply, the demand for 1st 16 ounces is higher than the demand for the 2nd 16 ounces, but the cost to produce the drink is the same. Since the demand for the next 16 ounces doesn’t shift twice as much, you can only charge 50 cents for the next 16 ounces. Price increments get smaller because of diminishing MU. Buying in bulk from Costco is not much less than buying single units from supermarkets as the price gap between the soda example. Even though you might get thirstier later in the day for another glass of soda, they won’t let you walk in with the first cup you bought from them. Eg. Fenway small soda - $6, bigger soda - $8, refillable soda cup - $10. Can you bring the $10 refillable cup back to additional games? No.
This person makes me enjoy these lessons. I have to spend three semesters on Micro and Macroeconomics and I didn't understand as much as I do now when this person is teaching! For once, the marginal utility of these lessons doesn't diminish for me! Thank you MIT open course! And thank you, Professor Gruber.
Microeconomics L-2 A. Utility Curves A.1.Assumptions A.1.1. Completeness - You can mark preference on any item. Inversely, you cannot say you feel 'indifferent' about it. A.1.2. Transitivity - If A preferred over B and b over C then A is preferred over C. A.1.3. Insatiable - More is better than less. A.2. Draw Utility curves now: Ordinal and not cardinal metric (i.e., you cannot be certain about by how much A is bigger than B but definitely rank A and B)
A.3. Properties A.3.1. Only one utility curve for a bundle - Completeness property (i.e., preferences cannot be uncertain or non-existent). A.3.2. Utility curves cannot cross each other - Transitivity (if crossed, A=B and A=C but A>C). A.3.3. Utility curves are negatively slopped - Insatiability (If positively slopped, More is equally preferable to less). A.3.4. Not concave to the origin - Violates Marginal diminishing utility (If concave, you'll be willing to substitute more goods of one type by an equal number of competitive goods when you have less of it). B. Marginal Utility B.1. The utility of the next unit of A relative to the amount of A you have now. Basically del(U)/del(A). B.2. Properties: B.2.1. Utility will increase but Marginal utility will be diminishing (Not concave to the origin). B.2.2. Though the Marginal utility is decreasing, the value must be non-negative. (Design Utility eqn accordingly). B.2.3. MRS (Marginal rate of substitution) = slope of the Utility curve = Marginal Utility of Item on the x-axis/Marginal Utility of item on the y-axis. B.2.4. Explanation of 3: delta A (the number of items A willing to be exchanged) is inversely proportional to the Marginal Utility of A at the given point for a given amount of item B. C. Other discussions: C.1. For additive items, it's not that the Marginal utility is increasing (it's diminishing in this case too) but the Utility function shifts. C.2. Why are price increments less than the proportional increment in the amount? - Refer Point 3 and 4 in Marginal utility. (Will be adding notes as I progress in the course based on my understanding of the material).
@@pratikbhaumik2748 This is a stupid statement because "these economics" doesn't exactly apply to any market. But they give a general idea of how it would behave. The robusticity of a model depends on the assumption you make. Please watch the lecture instead of scrolling through the comment section first.
these topics where the first topics in my microecomonics classes and i was so sad that i didnt understand them. I thought i was stupid or something since i had bad grades in my math classes at high school, but i understood everything quickly with this man, he is def a great teacher with amazing skills of simplification. Thanks for the open courses from one of the top universities! It is really helpful especially for those who can not afford to study in top rated schools
Definitions and Notes 1. Assumptions: more is always better, there are no budget constraints for this class's thought experiments. 2. Indifference curves: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility. 3. Four properties of Indifference curves: (i) People prefer higher IC (ii) Indifference curves never intersect. (iii) Indifference curves are downward sloping (iv) Only 1 I.C through every bundle 4. Preferences: In economics and other social sciences, preference is the order that a person gives to alternatives based on their relative utility, a process which results in an optimal "choice". Preferences are evaluations, they concern matters of value, typically in relation to practical reasoning. 5. Utility: Economists use the term utility to describe the pleasure or satisfaction that a consumer obtains from his or her consumption of goods and services. It is a subjective measure of pleasure or satisfaction that varies from individual to individual according to each individual's preferences
None of this has anything to do with smart shopping. The shopper with higher budget almost always gets the better price, which is basically an effect that is equivalent to a regressive tax.
I love this professor. He explains stuff so well. I currently also have a eco class at my university (Leiden University) which is also quite a good university, but I always come here to watch his lecture to really understand the topic haha
Great explanation. Im a data engineer trying to transition to economics field. This playlist is helping me understand the optics of economics. Thanks so much @MITOpenCourse and Prof. Jonathan Gruber.
Summarized by StudyGPT. you guys might find it useful The video explains the fundamentals of economics, including supply and demand, preferences, utility functions, and budget constraints. It discusses the concept of diminishing marginal utility and how it affects decision-making and pricing. [00:00] Jonathan Gruber discusses the demand curve and utility maximization in economics - The demand curve comes from consumer choices and preferences - Utility maximization involves combining consumer preferences with budget constraints - Three preference assumptions are posed: completeness, transitivity, and more is better [04:04] Assumptions of rational choice theory: completeness, transitivity, and nonsatiation - Completeness means having a preference for A over B or vice versa - Transitivity means if A is preferred over B and B is preferred over C, then A is preferred over C - Nonsatiation means more is always better than less, even if it doesn't make you equally happy - Indifference curves are graphical maps of preferences [08:10] Indifference curves represent consumer preferences and have four properties: higher curves are preferred, they are downward sloping, they never cross, and violate transitivity. - Consumers prefer higher indifference curves - Indifference curves are downward sloping - Indifference curves never cross, violating transitivity [12:13] The mathematical representation of preferences is called a utility function - Utility functions provide a stable and well-behaved representation of preferences - They simplify complex preferences by representing them mathematically - For example, a utility function could represent preferences for pizza and cookies [16:20] Utility is an ordinal concept used to rank choices, with diminishing marginal utility as more of a good is consumed. [20:26] Marginal utility decreases with each additional cookie, but more is still better. Utility function cannot be negative. [24:31] Indifference curves represent utility function and marginal rate of substitution, which diminishes due to diminishing marginal utility. [28:37] Diminishing marginal utility explains why we want less of a good as we have more of it - Marginal utilities are negative functions of quantity - As quantity of a good increases, the marginal utility decreases - Indifference curves are convex to the origin and violate the principle of diminishing marginal utility if concave [32:43] Diminishing marginal utility explains why prices of larger sizes of goods are cheaper than proportional to their size - As addiction increases, the utility function shifts - Addiction models show that cigarettes do less for you each day - Habituation to higher levels leads to accidental overdoses - Different products have different underlying utility - Prices reflect market's reaction to diminishing marginal utility [36:48] The video discusses the supply and demand model for soda pricing in stores - The supply curve is slightly upward sloping - Demand for larger sizes of soda does not increase proportionally - Diminishing marginal utility and packaging efficiencies affect pricing - Perishability of products and timeframes also impact pricing
For those of you doing the assignments and feeling like you've missed a lot with the math behind demand curves, you definitely have. If you're looking for a more in depth class that covers the math (which is quite important), I recommend the 2011 version of this course also on MIT open courses. The optional textbook also covers it if you prefer to read.
This is an amazing resource for my Microeconomics for Policy Analysis course at the U of MN. Needed some help with my homework and found this lecture. Thanks MIT for posting this to help other students. Great lecture, very good examples and easy to understand. Thank you!!!
*Assumptions* Completeness Transitivity Non-satiation 9:23 Four properties of indifference curves -Consumers prefer higher indifference curves -Indifference curves are downward slopping (Non-satiation) -Indifference curves never cross (Transivity) -Only one IC through every bundle 15:01 Utility functions Marginal utility 24:34 Marginal rate of substitution Indifference Curves are convex to the origin 32:38 Real life example of diminishing marginal utility 🔥
Just watching some other lectures from different teachers just shows me how widely different the teaching methods are between them. My teacher for example never went into indifference curves for example when discussing utility.
Happy to see so many fellow Indians in the comments. It shows we are knowledge hungry. Its sad we don't have these kind of professors in India even in elite schools like IIT.
The fact about Smoking is so true, Every single One Diminishes its taste after the othor one, and gives you a ton of problems that you were not having before. I like the fact that there is no big price different between the big giant Juice Drink and the Increase of their number. Because they know your appetite goes satisfactory after the previous one.
I dont know why I'm doing this to myself, but I am still in highschool and your boy here trying to learn some university materials, I feel very proud😂😂
- **Demand Curve** - represents how consumers make choices - **Supply Curve** - represents how firms make production decisions - Consumer decision making is a model of **utility maximisation**. Two components: - [1] **consumer preferences** - what people want - [2] **budget constraint** - what they can afford - In this lecture we are focussing on preferences - how do we model people's tastes? (Graphically) - A) Preference Assumptions: 1. Completeness - you have preferences over any set of goods. You can be indifferent 2. Transitivity - If you prefer A to B and B to C, you prefer A to C 3. Non-satiation - More is better than less (NOT that the next unit will make you equally happy!) - Indifference Curves represent all combinations in which you are indifferent - Four properties of Indifference Curves 1. Consumers prefer higher indifference curves (Principle more is better than less) 2. Indifference Curves are downward sloping (Principle of satiation) 3. Indifference Curves never cross (If IC crossed it would violate principle of transitivity) 4. Only one IC through every bundle (Principle of completeness) - Utility Functions (Mathematically)
Utility is an ordinal concept - you use it to rank preferences.
This function allows you weight the different elements of your consumption bundle
Simple, but powerful way to explain decisions
- Marginal Utility - Very important concept - it is a derivative of the utility function with regards to one of the elements - Marginal Utility of Cookies is the utility of the next cookie. - Compare with the question how many cookies do you want? (more difficult question) compared with do you want another cookie? - Key feature of utility functions: They will feature diminishing marginal utility. The more of a good you've had the less happiness you will derive from the next unit. - Marginal Utility is never negative - more makes you happier or at least indifferent - The indifference curve gives you the **Marginal Rate of Substitution** - the rate at which you are willing to substitute cookies for pizza. MRS is always diminishing. - **Marginal Utilities are negative functions of quantity - the more you have of a thing the less you want the next unit of it** - Indifference curves are convex to the origin - (a concave indifference curve would violate the principle of diminishing marginal utility)
for the diminishing marginal utility function, the partial derivative with respect to cookies is = 1/(2*sqrt(p*c))*p, so the MUF with cookies=1 is 0.7, not 1.4. same result with the first derivative with constant p=2
Ok you sound like a math guy, what happens to the Utility Function when you get hungry again, wouldn’t that affect your enjoyment or desire for another pizza or cookie? And how would that effect the formula
I noticed this, too, after calculating the partial derivative to get the MUF and wasn't sure if I was missing something or what ... I'm still not sure why he's not using the partial derivative of the UF to calculate the MUF.
In fact he uses not the exact derivatives, but the finite differences here. For the second cookie the utility function goes from 1.4 to 2, thus, the forward difference will be 2-1.4=0.6. And on margin utility slide he indeed has 0.59 for the second cookie. The same is true for the third one: 2.45-2=0.45, and so forth.
So efficient and useful Intro Econ Courses, thank you for sharing these precious videos with us and also appreciate his help (thanks sir) , I easily understood the parts that I haven't understood in my real classes :-)
Slight correction on opioids: Very few people switched from Oxycontin to heroin of their own volition. To say they did so actually buys into an Oxycontin-->heroin gateway drug theory, which is very dubious, like most other gateway drug theories. Most people who switched from Oxycontin to heroin did so after their Oxycontin supply was cut off. The overdose rates would be lower-- still too high, but much lower than at present-- if we hadn't cut people off (whether pain patients, addicts, recreational users, or whatever combination thereof) off of their prescription opioids.
You can't know if the second movie will not so exceed your expectations as to make you happier. Your a priori assumptions may be incorrect. But it is impossible to know this- a priori. Use upward sloping curves when one is a cost for the other. The cost for three of something may be more than three. As when marginal utility declines, as minimal cost (of production) is still additive. Oh! "The cookie monster:" Alone on a dark street: The marginal utility of a cookie. He sighed, looking up. Something to think about.Thank you again, Professor Gruber. I found your course useful and fun. My idea if fun, of course. And- The pizza will get cold.
Well my economics Professor in Germany did an equally good job (albeit in German)... I'm watching this to correlate the terminology in English. He used the most German Example ever! Beer and Wine!😝🤣
Today I am happy because to first time I find your page and I can learning science of the day because I am Iranian and here there aren't science of day . Tank you so much of MIT University to open course ware
Initial price of the cup is set to profit at any size in my opinion in the context of soft drinks but the small change of price is a psychological method to lure customers into thinking its a good deal because it wont make sense if all sizes were the same price people would just get the biggest but its a matter of who wants to drink more
I'm showing more class participation here than my actual class. I genuinely saying out the answers to his questions loud while my profs make me feel as if there's something wrong with coffee nowadays
on @31:31, even if it does make sense mathematically, once you gave one slice of pizza for one cookie, on the second trade, it does make sense to trade 2 slices of pizza for one cookie. I know this is theoretical, but it does not count the diabetes variable :P. that said, wonderful course!
Curious for anyone who might be able to explain this to me; How do you handle thresholds? Like, don't some things increase in marginal utility up to a point? If we measure soda in drops, most people wouldn't even pay a penny for a single drop of soda cause by itself it has no real utility. It's only once more and more drops accumulate that it hits a certain threshold at which we'd see a noticeable thirst-quenching benefit, and start to assign value to it.
very interesting question. think of soda with or without ice. the colder one might have more quenching benefit at an amount than the normal one at the same amount. it can easily boil down to what the consumer deems efficient.
Watching this kind of videos reminds me of Isaac Asimov saying decades ago the possibilities of learning with the invention of modern computers and internet. I’m on the subway in Latin America watching lectures of MIT, come on! 🤷🏼♂️
Notes Demand Curve - How consumers make choices Supply curve - How firms make production decisions Constaint maximization Utility maximization - preference and budget constraints The demand decreases but the cost of production remains the same
For the last question, I think we are talking about different decision, scenarios which mean the indifference curve shift, so we cannot compare the marginal utility in this case
The most memorable thing in this lesson is, cookies in US is really large, so comparable to a slice of pizza, and Santa Cruz is definitely the single most beautiful university lol
He was honest about that he is not good at Maths when he put a minus sign before the root of pizza*cookie. But still, amazing vidoe and I learnt a lot from it!
Law of Diminishing MU… can we take advantage of the firms based on this law? Example… L soda is 1.50, XL soda is 2.00 and is 2x as much. Consumers should purchase 1 XL and split it thereby saving 1 dollar. We see this happen a lot at the movie theater concession counter.
When I was in College i thought I would learn economics from Oxford or Cambridge University ( was not satisfied Indian education system) but it could not been reality and i left economics after college but now I am very thankful to you and MIT .
consider 5 same keys. a lock locks a big treasure. need 5 keys work together to unlock. each key gives more happiness. the last one gives a huge happiness even the person maybe happy to die.
My understanding. MRS is -MUx/MUy. Why negative? Cause MU is a strictly postive function and thus its quotient must be positive, so to ensure the Indifference curve has negative slope we add negative sign. Now why x/y and not y/x? Since MU is strictly decreasing function the more you have the less you get, and thus to follow the indifference curve we need the inverse behavior and thus x/y becomes necessary. In the end this is our model, we can do whatever we want aslong as it fufill all the previous established rules, and this model of MRS fufill all the rules of indifference curves and thus is internally consistent.
Well, I didn't watch the whole video,so a potential mistake that I point out here( I may be wrong) is that he says MU cannot be negative, where actually it can... The true assumption in consumer theory that we adopt is that a consumer has not yet reached the point of satiation -only then can we want more... When the amount consumer reaches that limit, beyond that we'll get a negative utility or disutility... Correct me if I am wrong!
I have a question, As an earlier comment consumer logic has change and is more sophisticated, meaning enviromental awareness. My question is if we could have negative indifference curves, Take blue jeans, everyone likes to wear them but in the manufacturing they use enormous amounts of water to soften the fabric and get that used look from a deep plain blue look. So let say we have blue jeans in x axis and kakhis in the y axis, now let my indiference curve have a portion on the -x axis. I have a bundle in this curve 1 blue jean and 2 kakhis, I bought one blue jean because I love how they look BUT I would not trade more blue jeans for less kakhis, in fact buying a second blue jean dimishes my utility it makes me feel gulty and that I am polluting, so there should be a point that states that I am willing to give up blue jeans for more khakis something like (-1,3) ?
If you already have one and then you decide to give up one jeans to more khaakis, then it should be (0,3) according to your example. While talking about utilities you are making a choice among 2 commodities (X, Y). from which you always try to maximize your utilities by making a choice of, how much of X and how much of Y. So, there would not be a negative utilities if you don't want one of the commodity.
Typically the preferences are defined on how many jeans and kakhis YOU HAVE. Since in this case you cannot have -1 pair of jeans, so you won't be able to obtain (-1,3). However, what you are saying is that when you have already got one pair of jeans, you will prefer less for having another pair of jeans. This can be reflected by your preference such that you prefer (1,x) over (2,x), where x represents the amount of kakhis you have and can be any positive value.
@@tzz909 That's exacly my question, I have 1 jean X kakhis (1,x) and its my birthday and I am teenager only my parents give me a present, they give a gift card from a clothes store, I dont want to own more that the jean I got but if the kakhis are very expensive compare to jeans it brings me disatisfaction to buy jeans compared to kakhis BUT I HAVE TO SPEND MY GIFT CARD.
More blue jeans = more dissatisfaction. Right ? Then, we can say, with more blue jeans we need more khakis to compensate for that loss(we are on same indifference curve, right?) .. We can draw a positive IC. Now, coming to your question, from (1, 2) you can go to (0, y) => no blue jeans (no initial enjoyment of blue jeans;you give that up) with necessary no of khakis to reach desired level of utility. Now, how would you give up more blue when you are at 0?
@@atmadhisarkar1159 Hi : ), because it expresses my dis utility of wearing blue jeans, I'm in the store with my gift card trying out jeans with a froun in my face because I rather want to buy khakis; And on an aggregate level the indifference curve should express the choices of the individuals, the people that are telling their friends: Don't wear (in the present, the purchase is already made) jeans wear khakis, don't buy a car that is not at least hybrid, buy fair trade coffee ... . Is an indifference curve that expresses, I have two pair of jeans because they were given to me but I rather trash them out (negative value in the indifference curve) and wear one khakis every single day at school because they don't pollute; I drink coffee every day but I would rather know that it is fair trade ... .
Didn't understand x axis and y axis in pizza cookie indifference curve. How we are happier with 2 pizza cookies . Will leave a comment when I understand. Was appreciating how others buy multiple products on my webpages etc someday. Maybe after I see all lectures.
This is why I want to go to a great school like this one. Not because I'm some kind of genius, but because I think, with the right teacher, anyone can be a genius. And at schools like MIT, every teacher is equipped to teach effectively.
Not necessarily
The rarity and therefore the meaning of 'genius' surely becomes diminished if 'anyone can be a genius'
This professor works for UNC.
I really think he could have done it better
Well said as I come accross the life of professorial I become utmost well in the case of the subject.I myself feel under high depth.
Notes:
Demand curve - how consumers make choices
Decision making - Utility maximisation. Consumer preferences - what people want and budget constraints - what they can afford.
Step 1 - Preferences - how do we model people’s taste - Unconstrained choices, money is no object, how do we think about what we want.
Preference assumptions. Models are based on simplifying assumptions. Are they roughly consistent with reality or not?
Completeness - We have preferences over any set of goods we choose from. Can’t say I don’t know how I feel about this.
Transitivity - If we prefer A to B and we prefer B to C then we prefer A to C.
Non-satiation/More is better - More is always better than less.
Graph of people’s preferences. Indifference curves. Graphical maps of preferences. Suppose parents gave money before semester. Spent on two things - buying pizza or eating cookies. 2 dimensional decision case. Consider 3 choices A. 2 pizzas and 1 cookie B. 1 pizza and 2 cookies C. 2 pizzas and 2 cookies. Assume - We are indifferent between these packages. Equally happy with all the packages. And also assume we prefer option C as more is better.
One indifference curve between A & B because those are the points among which you’re indifferent. Indifference curve represents all combinations of consumption among which you are indifferent. You are indifferent between A & B and therefore they lie on the same curve.
4 properties that you have to follow from these assumptions:
Prop 1 - Consumers prefer higher indifference curves = More is better. Package that has at least more of 1 thing than the other so you prefer it. As the curve shifts out you are happier because more is better
Prop 2 - Indifference curves are downward sloping. Comes from Principle of non-satiation.
Why does it violate the principle of non-satiation?
You cannot be Indifferent about 1 of each or 2 of each.
Prop 3 - Indifference curves never cross.
Because in B & C, B is strictly better but they’re also on the same curve as A. You’re indifferent with A for both B & C but you can’t be indifferent between B & C because B is strictly better than C. Indifference curves crossing violates transitivity.
Prop 4 - Only 1 indifference curve through every possible consumption model/ Only one indifference curve through every bundle. You can’t have 2 indifference curves in the same bundle because of Completeness. If this did happen you wouldn’t know how you felt. You may feel indifferent but you can’t say you don’t know how you feel.
Example - year op as a grad student who had to decide where he would accept the job. I am indifferent but I care about 2 things - school location and economics department quality (quality of my colleagues and the research that’s done there) One is from Princeton and the other is Santa Cruz (not as good as economics department). 3rd offer - IMF research institution in DC and had a lot of good colleague and DC is way better than Princeton. Worst quality than Princeton and worst location than Santa Cruz but it was still better in combination than these two institutions.
Utility Functions - Mathematical representation - Every individual has a stable well behaved underlying mathematical representation of your preferences which we call utility function. 2 dimension - how do we mathematically represent between pizza vs cookies. Utility function is no. of slices of pizza vs no. of cookies. U√P*C. What is Utility? It doesn’t mean anything. Its not a cardinal but an ordinal concept. Assume you can rank your choices in many dimensions. Weigh different assumptions so you can rank them when you need to choose.
Marginal utility - 1 cookie and then the value or utility of the next cookie. Marginal decisions. Once you eat an cookie, do you want the next unit/cookie/pizza? Key feature - Diminishing Marginal Utility - the more of you’ve had of a good the less you would want the next unit.
No. of cookies holding constant pizza. If you’re having 2 pizza slices and you want to say what’s my benefit from the next cookie. Left axis - violating the above we graph utility. Eg. If you have 1 cookie your utility is 1.4; square root of 2 times 1. If you have 2 cookies the utility goes up = square root of 4 which is 2. You’re happier with 2 cookies but you are less happy with the second cookie as you were with the first cookie.
The 1st cookie gave you 1.14 utility. What’s your happiness is measured in this graph of marginal utility. The next cookie’s utility is 2.059. Each additional cookie makes you less and less happy. Makes you happy as more is better but less happy as the 1st cookie. Remember you always want more cookies. You can say that the 11th will make you barf. But in economics you can give it away or save it for later, worst case you can throw it out, but you always think more is better. Utility function can never be negative, as its an ordinal concept, and is always positive as you get some benefit from the next unit.
Indifference curves are the graphical representation of what comes out of utility function. Slope of the indifference curve is called marginal rate of substitution. The rate at which you’re willing to substitute one good for another. Substitute cookies for pizza. dp÷dc = marginal rate of substitution.
I am indifferent between point A & B. Over here 1 slice of pizza = 1 cookie. Marginal rate of substitution is -2. I am ready to give 2 pizzas for 1 cookie. When we move from B to C the MRS is -½. Now I’m willing to give only 1 slice of pizza for 2 cookie, because we don’t want cookie as much due to diminishing marginally utility. MRS is always diminishing, it has to. Slope will always be falling. How MRS relates utility function; MRS=DP÷DC= -MUc÷MUp (c - cookie and p - pizza). MRS tells you how relative marginal utility evolves as you move down the indifference curve. When you start at point A, you have lots of pizza and not a lot of cookies; here your marginal utility is small. Marginal utility are negative functions of quality, the more you have it the less you want it. As you move along the indifference curve, you’re more willing to give up the good on the x-axis to get the good on the y-axis. Implies that indifference curves are convex to the origin. They’re not concave, they’re either convex or straight. It can be linear.
What would happen if indifferent curves were concave to the origin?
From point A to B leaves you indifferent so You can give 1 slice of pizza to get 1 cookie, starting to give 4 pizzas for 1 cookie. From 2 and 3 you are willing to give 2 pizzas for 1 cookie. This violates principle of MU and MRS as pizzas should be more valuable as you have less pizza now.
Addictive decisions - Smoking. Utility function shifts as you get more addictive. The next will be still be worth less. But as we’re addicted the first cigarette will be worth more and more to you. When you wake up feeling crappy the first cigarette will be good to you but the next morning you wake up feeling crappier and wanting the first cigarette more as people get habituated to certain levels. For drugs its not about diminishing MU but different underlying products used in the drug.
Example - Prices of different sizes of goods. Starbuck tall coffee for $2.25 and the next one for 70 more cents. McDonald - Small is $1.22 but for 50 more cents you can double the size. Why do they give twice as much for much less than twice as much money? Its all about diminishing MU, you’re desperate for the first soda on a hot day, but not twice as much for the next glass. Those prices reflect market’s reaction to diminishing MU. If you think about demand and supply, the demand for 1st 16 ounces is higher than the demand for the 2nd 16 ounces, but the cost to produce the drink is the same. Since the demand for the next 16 ounces doesn’t shift twice as much, you can only charge 50 cents for the next 16 ounces. Price increments get smaller because of diminishing MU. Buying in bulk from Costco is not much less than buying single units from supermarkets as the price gap between the soda example. Even though you might get thirstier later in the day for another glass of soda, they won’t let you walk in with the first cup you bought from them. Eg. Fenway small soda - $6, bigger soda - $8, refillable soda cup - $10. Can you bring the $10 refillable cup back to additional games? No.
Thank you Pallabi
Tx
Thanks a lot
thanksss
I have you for making me lazy and appreciate you
This person makes me enjoy these lessons. I have to spend three semesters on Micro and Macroeconomics and I didn't understand as much as I do now when this person is teaching! For once, the marginal utility of these lessons doesn't diminish for me! Thank you MIT open course! And thank you, Professor Gruber.
head
👑
😂
01:13 Model Assumptions
05:54 Indifference Curves
09:23 - - > Four Properties
13:27 - - > Real Example ( job search )
15:28 Utility Functions
18:31 - - > Margin Utility
24:49 Marginal Rate of Substitution
30:13 - - - > Why graph's not concave
32:37 - - - > (Q) Addictives & MRS
34:31 Price of Different Sizes of Goods
bless you
Thanks ...
Thank you kindly
Nice
☝️
Always grate to see MIT upload info for the world to hear/see/read. Thanks
Microeconomics L-2
A. Utility Curves
A.1.Assumptions
A.1.1. Completeness - You can mark preference on any item. Inversely, you cannot say you feel 'indifferent' about it.
A.1.2. Transitivity - If A preferred over B and b over C then A is preferred over C.
A.1.3. Insatiable - More is better than less.
A.2. Draw Utility curves now: Ordinal and not cardinal metric (i.e., you cannot be certain about by how much A is bigger than B but definitely rank A and B)
A.3. Properties
A.3.1. Only one utility curve for a bundle - Completeness property (i.e., preferences cannot be uncertain or non-existent).
A.3.2. Utility curves cannot cross each other - Transitivity (if crossed, A=B and A=C but A>C).
A.3.3. Utility curves are negatively slopped - Insatiability (If positively slopped, More is equally preferable to less).
A.3.4. Not concave to the origin - Violates Marginal diminishing utility (If concave, you'll be willing to substitute more goods of one type by an equal number of competitive goods when you have less of it).
B. Marginal Utility
B.1. The utility of the next unit of A relative to the amount of A you have now. Basically del(U)/del(A).
B.2. Properties:
B.2.1. Utility will increase but Marginal utility will be diminishing (Not concave to the origin).
B.2.2. Though the Marginal utility is decreasing, the value must be non-negative. (Design Utility eqn accordingly).
B.2.3. MRS (Marginal rate of substitution) = slope of the Utility curve = Marginal Utility of Item on the x-axis/Marginal Utility of item on the y-axis.
B.2.4. Explanation of 3: delta A (the number of items A willing to be exchanged) is inversely proportional to the Marginal Utility of A at the given point for a given amount of item B.
C. Other discussions:
C.1. For additive items, it's not that the Marginal utility is increasing (it's diminishing in this case too) but the Utility function shifts.
C.2. Why are price increments less than the proportional increment in the amount? - Refer Point 3 and 4 in Marginal utility.
(Will be adding notes as I progress in the course based on my understanding of the material).
Can you share the name of the material, you are using?
I'm getting addicted to these lecture videos. The way Dr. Gruber teaches Microeconomics is fascinating. He is so wise.
Now I know the difference between MIT and DU. Not the curriculum but the faculty.
DU?
@@accountsequity5587
Must be Delhi University
@@pratikbhaumik2748 This is a stupid statement because "these economics" doesn't exactly apply to any market. But they give a general idea of how it would behave. The robusticity of a model depends on the assumption you make. Please watch the lecture instead of scrolling through the comment section first.
@@Ankit-fe7un yes u are right.
Chaos theory is what we should apply to Indian markets.
Entropy of indian market always increases .
Never decreases.
Logic and roman system of science never works it completely breaks apart what we need is chaos theory.
Prof. Gruber and his MIT students were on fire. What a terrific lecture and insightful Q&A.
I really appreciate MIT open courseWare, helping me alot in learning my MicroEconomics Theory course
these topics where the first topics in my microecomonics classes and i was so sad that i didnt understand them. I thought i was stupid or something since i had bad grades in my math classes at high school, but i understood everything quickly with this man, he is def a great teacher with amazing skills of simplification. Thanks for the open courses from one of the top universities! It is really helpful especially for those who can not afford to study in top rated schools
respected professor teaches in very simple manner believe me i am a biology student
Definitions and Notes
1. Assumptions: more is always better, there are no budget constraints for this class's thought experiments.
2. Indifference curves: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.
3. Four properties of Indifference curves:
(i) People prefer higher IC
(ii) Indifference curves never intersect.
(iii) Indifference curves are downward sloping
(iv) Only 1 I.C through every bundle
4. Preferences: In economics and other social sciences, preference is the order that a person gives to alternatives based on their relative utility, a process which results in an optimal "choice". Preferences are evaluations, they concern matters of value, typically in relation to practical reasoning.
5. Utility: Economists use the term utility to describe the pleasure or satisfaction that a consumer obtains from his or her consumption of goods and services. It is a subjective measure of pleasure or satisfaction that varies from individual to individual according to each individual's preferences
None of this has anything to do with smart shopping. The shopper with higher budget almost always gets the better price, which is basically an effect that is equivalent to a regressive tax.
@@schmetterling4477 Yeah sometimes Reality is way different than these textbooks can teach us!
@@rickandmorty2361 Why do you assume that his bullshit came from an actual textbook (at least one worth reading)?
I love this professor. He explains stuff so well. I currently also have a eco class at my university (Leiden University) which is also quite a good university, but I always come here to watch his lecture to really understand the topic haha
planning to do my master's there, how much'd you recommend it?
Great explanation. Im a data engineer trying to transition to economics field. This playlist is helping me understand the optics of economics. Thanks so much @MITOpenCourse and Prof. Jonathan Gruber.
Myself also it's a great exposure to all of Commerce in healthier format.
Summarized by StudyGPT. you guys might find it useful
The video explains the fundamentals of economics, including supply and demand, preferences, utility functions, and budget constraints. It discusses the concept of diminishing marginal utility and how it affects decision-making and pricing.
[00:00] Jonathan Gruber discusses the demand curve and utility maximization in economics
- The demand curve comes from consumer choices and preferences
- Utility maximization involves combining consumer preferences with budget constraints
- Three preference assumptions are posed: completeness, transitivity, and more is better
[04:04] Assumptions of rational choice theory: completeness, transitivity, and nonsatiation
- Completeness means having a preference for A over B or vice versa
- Transitivity means if A is preferred over B and B is preferred over C, then A is preferred over C
- Nonsatiation means more is always better than less, even if it doesn't make you equally happy
- Indifference curves are graphical maps of preferences
[08:10] Indifference curves represent consumer preferences and have four properties: higher curves are preferred, they are downward sloping, they never cross, and violate transitivity.
- Consumers prefer higher indifference curves
- Indifference curves are downward sloping
- Indifference curves never cross, violating transitivity
[12:13] The mathematical representation of preferences is called a utility function
- Utility functions provide a stable and well-behaved representation of preferences
- They simplify complex preferences by representing them mathematically
- For example, a utility function could represent preferences for pizza and cookies
[16:20] Utility is an ordinal concept used to rank choices, with diminishing marginal utility as more of a good is consumed.
[20:26] Marginal utility decreases with each additional cookie, but more is still better. Utility function cannot be negative.
[24:31] Indifference curves represent utility function and marginal rate of substitution, which diminishes due to diminishing marginal utility.
[28:37] Diminishing marginal utility explains why we want less of a good as we have more of it
- Marginal utilities are negative functions of quantity
- As quantity of a good increases, the marginal utility decreases
- Indifference curves are convex to the origin and violate the principle of diminishing marginal utility if concave
[32:43] Diminishing marginal utility explains why prices of larger sizes of goods are cheaper than proportional to their size
- As addiction increases, the utility function shifts
- Addiction models show that cigarettes do less for you each day
- Habituation to higher levels leads to accidental overdoses
- Different products have different underlying utility
- Prices reflect market's reaction to diminishing marginal utility
[36:48] The video discusses the supply and demand model for soda pricing in stores
- The supply curve is slightly upward sloping
- Demand for larger sizes of soda does not increase proportionally
- Diminishing marginal utility and packaging efficiencies affect pricing
- Perishability of products and timeframes also impact pricing
For those of you doing the assignments and feeling like you've missed a lot with the math behind demand curves, you definitely have. If you're looking for a more in depth class that covers the math (which is quite important), I recommend the 2011 version of this course also on MIT open courses. The optional textbook also covers it if you prefer to read.
Thank you. When you say the 2011 version, is 2011 the year?
@@compassft yes
@@notanikdey thank you!
do you have a link? can't find it on yt
THANK YOU SOOO MUCH!!! I thought I was an idiot for being lost on the MRS problems, but I'm only stupid.
Wow, I didn't realise there was a new edition! I'd seen his last version from 2011 and it's really neat to see this one too.
Same here
This is an amazing resource for my Microeconomics for Policy Analysis course at the U of MN. Needed some help with my homework and found this lecture. Thanks MIT for posting this to help other students. Great lecture, very good examples and easy to understand. Thank you!!!
hii
Myself,it's time for post behavioural of post graduate.Thats really a privilege.
Woah, simplifies everything to the core so you get a deeper understanding in every aspect. Heads up for the prof!
really love the part where he explains MRS = - MUc/MUp!!!! I understood it intuitively and graphically! Thank you so much!
This lectures help me a lot in understanding economy concepts and theories. Thank you!! Also, I totally admire the class interactions.
Man, thought I was hooked on TED Talks...love these MIT lectures !
Thank you Proffesor for letting this lectures online, I study my micro lessons with these lectures ^-^
Where do you study at?
@@georgemwanza6339 probably somewhere in turkey
@@SarpErimErcan I'm studying economics in Turkey too
Do y'all think Turkey's economy is getting bankrupt?
@@oris2723 not gonna bankrupt but we are gonna have to have really really tough times because of the untalented people who manage the country
*Assumptions*
Completeness
Transitivity
Non-satiation
9:23 Four properties of indifference curves
-Consumers prefer higher indifference curves
-Indifference curves are downward slopping (Non-satiation)
-Indifference curves never cross (Transivity)
-Only one IC through every bundle
15:01 Utility functions
Marginal utility
24:34 Marginal rate of substitution
Indifference Curves are convex to the origin
32:38 Real life example of diminishing marginal utility 🔥
Just watching some other lectures from different teachers just shows me how widely different the teaching methods are between them. My teacher for example never went into indifference curves for example when discussing utility.
Happy to see so many fellow Indians in the comments. It shows we are knowledge hungry. Its sad we don't have these kind of professors in India even in elite schools like IIT.
Yeaaah♥️🌝
The fact about Smoking is so true, Every single One Diminishes its taste after the othor one, and gives you a ton of problems that you were not having before.
I like the fact that there is no big price different between the big giant Juice Drink and the Increase of their number. Because they know your appetite goes satisfactory after the previous one.
I wish our teachers could teach like that.
Sooooooo helpful and simple .💜💜💜thank you so much😗
I’m an engineer and loving the lectures! So we’ll presented!
Whenever they present a concept i immediately look forward to the example because it makes so much sense
Thank you so much for this excellent free education.
I dont know why I'm doing this to myself, but I am still in highschool and your boy here trying to learn some university materials, I feel very proud😂😂
# Preferences and Utility Functions NOTES
- **Demand Curve** - represents how consumers make choices
- **Supply Curve** - represents how firms make production decisions
- Consumer decision making is a model of **utility maximisation**.
Two components:
- [1] **consumer preferences** - what people want
- [2] **budget constraint** - what they can afford
- In this lecture we are focussing on preferences - how do we model people's tastes? (Graphically)
- A) Preference Assumptions:
1. Completeness - you have preferences over any set of goods. You can be indifferent
2. Transitivity - If you prefer A to B and B to C, you prefer A to C
3. Non-satiation - More is better than less (NOT that the next unit will make you equally happy!)
- Indifference Curves represent all combinations in which you are indifferent
- Four properties of Indifference Curves
1. Consumers prefer higher indifference curves (Principle more is better than less)
2. Indifference Curves are downward sloping (Principle of satiation)
3. Indifference Curves never cross (If IC crossed it would violate principle of transitivity)
4. Only one IC through every bundle (Principle of completeness)
- Utility Functions (Mathematically)
Utility is an ordinal concept - you use it to rank preferences.
This function allows you weight the different elements of your consumption bundle
Simple, but powerful way to explain decisions
- Marginal Utility - Very important concept - it is a derivative of the utility function with regards to one of the elements
- Marginal Utility of Cookies is the utility of the next cookie.
- Compare with the question how many cookies do you want? (more difficult question) compared with do you want another cookie?
- Key feature of utility functions: They will feature diminishing marginal utility. The more of a good you've had the less happiness you will derive from the next unit.
- Marginal Utility is never negative - more makes you happier or at least indifferent
- The indifference curve gives you the **Marginal Rate of Substitution** - the rate at which you are willing to substitute cookies for pizza. MRS is always diminishing.
- **Marginal Utilities are negative functions of quantity - the more you have of a thing the less you want the next unit of it**
- Indifference curves are convex to the origin - (a concave indifference curve would violate the principle of diminishing marginal utility)
Thanks for sharing ☺️😊😊
This is cool. I hope you have done this on all videos. 😂❤
for the diminishing marginal utility function, the partial derivative with respect to cookies is = 1/(2*sqrt(p*c))*p, so the MUF with cookies=1 is 0.7, not 1.4. same result with the first derivative with constant p=2
Ok you sound like a math guy, what happens to the Utility Function when you get hungry again, wouldn’t that affect your enjoyment or desire for another pizza or cookie? And how would that effect the formula
I noticed this, too, after calculating the partial derivative to get the MUF and wasn't sure if I was missing something or what ... I'm still not sure why he's not using the partial derivative of the UF to calculate the MUF.
In fact he uses not the exact derivatives, but the finite differences here. For the second cookie the utility function goes from 1.4 to 2, thus, the forward difference will be 2-1.4=0.6. And on margin utility slide he indeed has 0.59 for the second cookie. The same is true for the third one: 2.45-2=0.45, and so forth.
@@samedy00 but why finite difference is different than exact derivative
Because finite differences equal to the exact derivatives only for linear functions.
So efficient and useful Intro Econ Courses, thank you for sharing these precious videos with us and also appreciate his help (thanks sir) , I easily understood the parts that I haven't understood in my real classes :-)
Same here, cheers dude :)
He is a great teacher. I hven't seen such appreciation and encouragement from teachers.
Once I’m done with these set of videos, I’m telling everyone I studied at MIT
even non-economics students can understand his lecture, maybe this is what a good teacher is.
it is a class for engineering students after all
Well explained and presented with simple but realistically-based examples!
Now I know the difference between MIT and MU.not the curriculum but the faculty.
Opportunity cost of watching these videos is amazing
I like how his chalk will just snap in half and he'll just keep on going without batting an eye.
Great Video and for figure 2-5, y-axis should be dU/dC instead of Utility.
Slight correction on opioids: Very few people switched from Oxycontin to heroin of their own volition. To say they did so actually buys into an Oxycontin-->heroin gateway drug theory, which is very dubious, like most other gateway drug theories. Most people who switched from Oxycontin to heroin did so after their Oxycontin supply was cut off. The overdose rates would be lower-- still too high, but much lower than at present-- if we hadn't cut people off (whether pain patients, addicts, recreational users, or whatever combination thereof) off of their prescription opioids.
This really helped me a lot for my study in Vietnam
FENTANYL is mostly produced in the Golden Triangle( consisting of areas in Myanmar, Laos and Thiland) not in China.
It's the aggregate behaviour of indifference curve which show's the cross section of indifference curve.
This professor is amazing. I wish mine were as good at explaining econ like him.
His voice is pretty young
You can't know if the second movie will not so exceed your expectations as to make you happier. Your a priori assumptions may be incorrect. But it is impossible to know this- a priori.
Use upward sloping curves when one is a cost for the other. The cost for three of something may be more than three. As when marginal utility declines, as minimal cost (of production) is still additive.
Oh! "The cookie monster:" Alone on a dark street: The marginal utility of a cookie. He sighed, looking up. Something to think about.Thank you again, Professor Gruber. I found your course useful and fun. My idea if fun, of course.
And-
The pizza will get cold.
Holy fuck MIT classes public. Awesome.
At this point I can clearly say CU , DU AND MIT HAVE SAME THINGS THEY TEACH THEIR CHILD
Well my economics Professor in Germany did an equally good job (albeit in German)... I'm watching this to correlate the terminology in English.
He used the most German Example ever! Beer and Wine!😝🤣
Today I am happy because to first time I find your page and I can learning science of the day because I am Iranian and here there aren't science of day .
Tank you so much of MIT University to open course ware
God bless you
Initial price of the cup is set to profit at any size in my opinion in the context of soft drinks but the small change of price is a psychological method to lure customers into thinking its a good deal because it wont make sense if all sizes were the same price people would just get the biggest but its a matter of who wants to drink more
This is so easy in comparison to what we study in india.
Damn bro you so smart
I'm showing more class participation here than my actual class.
I genuinely saying out the answers to his questions loud while my profs make me feel as if there's something wrong with coffee nowadays
on @31:31, even if it does make sense mathematically, once you gave one slice of pizza for one cookie, on the second trade, it does make sense to trade 2 slices of pizza for one cookie. I know this is theoretical, but it does not count the diabetes variable :P.
that said, wonderful course!
He's a great teacher who explains very well
Curious for anyone who might be able to explain this to me;
How do you handle thresholds? Like, don't some things increase in marginal utility up to a point? If we measure soda in drops, most people wouldn't even pay a penny for a single drop of soda cause by itself it has no real utility. It's only once more and more drops accumulate that it hits a certain threshold at which we'd see a noticeable thirst-quenching benefit, and start to assign value to it.
very interesting question. think of soda with or without ice. the colder one might have more quenching benefit at an amount than the normal one at the same amount. it can easily boil down to what the consumer deems efficient.
Watching this kind of videos reminds me of Isaac Asimov saying decades ago the possibilities of learning with the invention of modern computers and internet.
I’m on the subway in Latin America watching lectures of MIT, come on! 🤷🏼♂️
This is quality education of MIT, very useful.
watching this from UCSC, tryna cram for my midterm tomorrow
This is a great lecture! Thanks MIT Opencourseware
These lectures are fire 🔥 wish that was my professor
Ging Freecss is the smartest character in anime.
Lelouch is trash
Wow, this lecturer is amazing! Thank you MIT!!!
Notes
Demand Curve - How consumers make choices
Supply curve - How firms make production decisions
Constaint maximization
Utility maximization - preference and budget constraints
The demand decreases but the cost of production remains the same
For the last question, I think we are talking about different decision, scenarios which mean the indifference curve shift, so we cannot compare the marginal utility in this case
We observe in the shift of indifference curve the MRS exists hence,MU will always be there.
The most memorable thing in this lesson is, cookies in US is really large, so comparable to a slice of pizza, and Santa Cruz is definitely the single most beautiful university lol
He was honest about that he is not good at Maths when he put a minus sign before the root of pizza*cookie. But still, amazing vidoe and I learnt a lot from it!
Cigarette discussion was amazing !
Law of Diminishing MU… can we take advantage of the firms based on this law? Example… L soda is 1.50, XL soda is 2.00 and is 2x as much.
Consumers should purchase 1 XL and split it thereby saving 1 dollar.
We see this happen a lot at the movie theater concession counter.
prefensi > yang diinginkan orang
budget kendala anggaran yg mampu mereka beli
When I was in College i thought I would learn economics from Oxford or Cambridge University ( was not satisfied Indian education system) but it could not been reality and i left economics after college but now I am very thankful to you and MIT .
If you derive $1's worth of utility dreaming about winning the lottery then that dollar is not wasted when you don't win.
Reasonable. Next on: opportunity costs. :D
consider 5 same keys. a lock locks a big treasure. need 5 keys work together to unlock. each key gives more happiness. the last one gives a huge happiness even the person maybe happy to die.
Thank you Mit and prifessor Gruber for the useful lesson 🥰
Prof Gruber r the best thing that ever happened to me, thank you for posting
My understanding. MRS is -MUx/MUy. Why negative? Cause MU is a strictly postive function and thus its quotient must be positive, so to ensure the Indifference curve has negative slope we add negative sign. Now why x/y and not y/x? Since MU is strictly decreasing function the more you have the less you get, and thus to follow the indifference curve we need the inverse behavior and thus x/y becomes necessary. In the end this is our model, we can do whatever we want aslong as it fufill all the previous established rules, and this model of MRS fufill all the rules of indifference curves and thus is internally consistent.
I am falling in love with this
32:03 Bless you person who sneezed
Well, I didn't watch the whole video,so a potential mistake that I point out here( I may be wrong) is that he says MU cannot be negative, where actually it can... The true assumption in consumer theory that we adopt is that a consumer has not yet reached the point of satiation -only then can we want more... When the amount consumer reaches that limit, beyond that we'll get a negative utility or disutility... Correct me if I am wrong!
I just understood the Mrs = ∆p/∆c = -MUc/MUp , with all the math i know, it's basically the slope in partial derivative form
non satiation assumption: more is always better!
Bravo MIT! 👏
23:25 you said marginal Utility is always positive, which is not the case, it can be positive, zero and negative. .
that's what I was gonna comment on! You're right, indeed!
Marginal utility may be a reduction factor in cross elasticity of demand thus there will be a negative MU,great thought.
That’s an assumption made at the beginning of the lecture
Finished, so appreciated of sharing, great instructer.
Thanks MR professor 👏🏼👏🏼👏🏼👏🏼🇦🇿🇦🇿🇦🇿Hello from Azerbaijan ❤️❤️❤️
An inside look into the future: exclusive interview with Binance’s CEO
thank you so much this class really helped me
this lecture is realy good
I have a question,
As an earlier comment consumer logic has change and is more sophisticated, meaning enviromental awareness.
My question is if we could have negative indifference curves,
Take blue jeans, everyone likes to wear them but in the manufacturing they use enormous amounts of water to soften the fabric and get that used look from a deep plain blue look. So let say we have blue jeans in x axis and kakhis in the y axis, now let my indiference curve have a portion on the -x axis. I have a bundle in this curve 1 blue jean and 2 kakhis, I bought one blue jean because I love how they look BUT I would not trade more blue jeans for less kakhis, in fact buying a second blue jean dimishes my utility it makes me feel gulty and that I am polluting, so there should be a point that states that I am willing to give up blue jeans for more khakis something like (-1,3) ?
If you already have one and then you decide to give up one jeans to more khaakis, then it should be (0,3) according to your example. While talking about utilities you are making a choice among 2 commodities (X, Y). from which you always try to maximize your utilities by making a choice of, how much of X and how much of Y. So, there would not be a negative utilities if you don't want one of the commodity.
Typically the preferences are defined on how many jeans and kakhis YOU HAVE. Since in this case you cannot have -1 pair of jeans, so you won't be able to obtain (-1,3). However, what you are saying is that when you have already got one pair of jeans, you will prefer less for having another pair of jeans. This can be reflected by your preference such that you prefer (1,x) over (2,x), where x represents the amount of kakhis you have and can be any positive value.
@@tzz909 That's exacly my question, I have 1 jean X kakhis (1,x) and its my birthday and I am teenager only my parents give me a present, they give a gift card from a clothes store, I dont want to own more that the jean I got but if the kakhis are very expensive compare to jeans it brings me disatisfaction to buy jeans compared to kakhis BUT I HAVE TO SPEND MY GIFT CARD.
More blue jeans = more dissatisfaction. Right ?
Then, we can say, with more blue jeans we need more khakis to compensate for that loss(we are on same indifference curve, right?) .. We can draw a positive IC.
Now, coming to your question, from (1, 2) you can go to (0, y) => no blue jeans (no initial enjoyment of blue jeans;you give that up) with necessary no of khakis to reach desired level of utility.
Now, how would you give up more blue when you are at 0?
@@atmadhisarkar1159 Hi : ), because it expresses my dis utility of wearing blue jeans, I'm in the store with my gift card trying out jeans with a froun in my face because I rather want to buy khakis; And on an aggregate level the indifference curve should express the choices of the individuals, the people that are telling their friends: Don't wear (in the present, the purchase is already made) jeans wear khakis, don't buy a car that is not at least hybrid, buy fair trade coffee ... . Is an indifference curve that expresses, I have two pair of jeans because they were given to me but I rather trash them out (negative value in the indifference curve) and wear one khakis every single day at school because they don't pollute; I drink coffee every day but I would rather know that it is fair trade ... .
Didn't understand x axis and y axis in pizza cookie indifference curve. How we are happier with 2 pizza cookies
. Will leave a comment when I understand. Was appreciating how others buy multiple products on my webpages etc someday. Maybe after I see all lectures.
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Estou adorando as aulas com este professor, thanks ;)
voce entende tudo?
@@baldinib1055 Eu particularmente não. Quando há algo que não entendo vou pro google tradutor. Você chegou a finalizar?
Thank you for these videos. Easy to grasp and well explained.
17:11 In Spanish "útiles" is plural for "util" (useful)
Also he refers to the UNIT OF MEASUREMENT that you use to measure UTILITY, that is called "util" in english or as its plural indicates "utils"
Thank you Prof Gruber.
Imo, in the job search example, IMF will lie in the middle of indifference curve, not on the higher curve!