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#cfa #cfa-level-1 #economics #microeconomics #reading-14-demand-and-supply-analysis-consumer-demand #section-3-utility-theory #study-session-4
Under “reasonable assumptions” (the definition of which is not necessary for us to delve into at this level), it is possible to come up with a rule that translates the quantities of goods in each basket into the number that our consumer has assigned to each basket. That “assignment rule” is called the utility function of that particular consumer.
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3. UTILITY THEORY: MODELING PREFERENCES AND TASTES
ch of the goods and services. So, we have two sets of numbers. One set consists of the pieces of paper he has laid on the bundles. The other is the set of numerical quantities of the goods that are contained in each of the respective bundles. <span>Under “reasonable assumptions” (the definition of which is not necessary for us to delve into at this level), it is possible to come up with a rule that translates the quantities of goods in each basket into the number that our consumer has assigned to each basket. That “assignment rule” is called the utility function of that particular consumer. The single task of that utility function is to translate each basket of goods and services into a number that rank orders the baskets according to our particular consumer’s preferences.


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