Economics Questions

Re: Utils

Giant_Joe — Wed, 13 Jan 2010 17:45:08 GMT

Thanks, I'm learning a lot here. I understand what you are saying when you say you didn't understand. I think at that point I was just typing without a completely clear idea.

Re: Utils

laminustacitus — Wed, 13 Jan 2010 17:30:06 GMT

Giant_Joe:

Say you prefer a room at 72F. The room is at 50F. It is too cold for my liking. I can try several approaches to get the temperature to 72F:

Get a furnace -> raise temperature by 20F = 20 utils

Get a fireplace -> raise temperature 15F = 15 utils

Get an electric heater -> raise temp 10F = 10 utils

etc...

Wouldn't this mean that getting a furnace would be good, but getting all 3 would be best? I thought I wanted the room to be 72F, not 100F!

No, all that this means is that the individual in question prefers getting a furnace over getting a fireplace, which he would prefer over an electric heater (furnace< fireplace < electric heater).

Giant_Joe:
Is there some kind of utility function here?

Indeed, and where the indifference curve (i.e. bundles of goods between which a consumer is indifferent) is tangent to the individual's budget constraint (it does get more complicated, but the point of tangency rule is fine if the utility function is "well-behaved", that is both monotonic and convex) will dictate the optimal choice.

Giant_Joe:
If I prefer 72F and get closer to it, wouldn't that change the utils of the other options?

No, that would not change the other indifference curves in the consumption choice set. The consumer may be able to afford 72F, but that does not mean that his preferences will change in the model, it will be reflected by the fact that the budget curve will be tangent (again, assuming well-behaved preferences) to a more preferable indifferent curve.

Giant_Joe:
At that point, we could just organize actions based on how it will achieve an end we want. (Ordinal scale of values) We could also say that the values of these actions change as the person's environment and psychology change.

Honestly, I do not really comprehend what you are trying to say here.

A final note, this example does imply that there is a satiation point, hence the indifference curves will not be well-behaved, but I will not elucidate upon the results of that due to its technical difficulty.

Re: Utils

MatthewWilliam — Wed, 13 Jan 2010 17:16:27 GMT

After a quick glance at the micro textbook, my answer is that your indifference curves might look like this:

I like your little example too. If you wanted to gather as many utils as possible, you'd prefer to live in a oven. On the other hand, I don't think I'd call "a 1 degree rise in temperature" an economic good worthy of giving utils.

Utils

Giant_Joe — Wed, 13 Jan 2010 16:08:12 GMT

I don't know if I've come across any examples of the silliness of utils, but I've illustrated one in my mind to help me understand the concept. I'm not sure if I have it right, though.

Say you prefer a room at 72F. The room is at 50F. It is too cold for my liking. I can try several approaches to get the temperature to 72F:

Get a furnace -> raise temperature by 20F = 20 utils
Get a fireplace -> raise temperature 15F = 15 utils
Get an electric heater -> raise temp 10F = 10 utils

etc...

Wouldn't this mean that getting a furnace would be good, but getting all 3 would be best? I thought I wanted the room to be 72F, not 100F!

Is there some kind of utility function here? If I prefer 72F and get closer to it, wouldn't that change the utils of the other options? If that is so, isn't that planning multiple actions to achieve a desired end? At hat point, we could just organize actions based on how it will achieve an end we want. (Ordinal scale of values) We could also say that the values of these actions change as the person's environment and psychology change.

Does this example in any way imply some of the arguments put forth by praxeology?