Beruflich Dokumente
Kultur Dokumente
Consumer
Behavior
Topics to be Discussed
Consumer Preferences
Budget Constraints
Consumer Choice
Revealed Preferences
A 20 30
B 10 50
D 40 20
E 30 40
G 10 20
H 10 40
A
30
D
20 G
10
Food
10 20 30 40 (units per week)
A
30
D
20 U1
G
10
Food
10 20 30 40 (units per week)
B A
U3
U2
U1
Food
(units per week)
B
D
Food
(units per week)
10 B
1 Question: Does this
8 -4 relation hold for giving
D up food to get clothing?
6 1
-2 E
4 G
1 -1
2 1
Food
1 2 3 4 5 (units per week)
Clothing 16 A
(units
MRS C
per week) 14 MRS = 6 F
12 -6
10 B
1
8 -4
D MRS = 2
6 1
-2 E
4 G
1 -1
2 1
Food
1 2 3 4 5 (units per week)
Orange Juice
0 1 2 3 4 (glasses)
Perfect
Perfect
3
Complements
Complements
0 1 2 3 4 Right Shoes
Styling Consumer
Consumer
Preference
Preference A:
A:
High
HighMRS
MRS
Performance
Performance
PFF PCC I
A 040 $80
B 2030 $80
D 4020 $80
E 6010 $80
G 800 $80
B 1
30 Slope C/F - - PF/PC
2
10
D
20
20
E
10
G Food
0 20 40 60 80 = (I/PF) (units per week)
60
A decrease in
income shifts
40 the budget line
inward
20 L3
(I = L1 L2
$40) (I = $80) (I = $160)
Food
0 40 80 120 160 (units per week)
C
MRS
F
Further, the slope of the budget line is:
PF
Slope
PC
Chapter 3: Consumer Behavior Slide
Consumer Choice
Therefore, it can be said that
satisfaction is maximized where:
PF
MRS
PC
U1
+10F
40
D Market basket D
30 cannot be attained
given the current
budget constraint.
20
U3
Budget Line
A
20 At A:
MRS =Pf/Pc = .5
U2
Budget Line
0 20 40 80 Food (units per week)
Styling
$3,000
Styling
Before Grant
Budget line: PQ
P A: Preference maximizing
market basket
Expenditure
OR: Private
A OS: Police
R
U1
Police
O S Q Expenditures ($)
T
After Grant
Budget line: TV
P B: Preference maximizing
market basket
Expenditure
U B OU: Private
A OZ: Police
R U3
U1
Police
O S Z Q V Expenditures ($)
T Before Grant
Budget line: PQ
A: Preference maximizing
P market basket
After Grant
C: Preference maximizing
market basket
W A Expenditures
R C OW: Private
U2 OX: Police
U1
O S X Q R Police ($)
T
Nonmatching Grant
Point B
P OU: Private expenditure
OZ: Police expenditure
Matching Grant
U B Point C
W A OW: Private expenditure
C U OX: Police expenditure
U2 3
U1
O Z X Q R Police ($)
U1
Q Education ($)
B
D
B
D
B is preferred to
all market baskets
in the green area
l4
A
l2
B G
A: preferred to all I4: G revealed preferred to A
market baskets in
the green area
Food (units per month)
Other Scenario
Recreational Robertas recreation budget = $100/wk
Activities Price of exercise = $4/hr/week
($) Exercises 10 hrs/wk at A given U1 & I1
100 C
80
The rate changes to $1/hr + $30/wk
60 New budget line I2 & combination B
A
B Reveal preference of B to A
40 U1 U2
Would the Clubs
20 profits increase?
l1 l2
Amount of Exercise
0 25 50 75 (hours)
0 MUF(F) MUC(C)
C / F MU F / MU C
C / F MU F / MU C
Because:
C / F MRS of F for C
MRS MUF/MUC
Chapter 3: Consumer Behavior Slide
Marginal Utility and
Consumer Choice
When consumers maximize satisfaction
the:
MRS PF/PC
Since the MRS is also equal to the ratio of the
marginal utilities of consuming F and C, it
follows that:
MUF/MUC PF/PC
Chapter 3: Consumer Behavior Slide
Marginal Utility and
Consumer Choice
Which gives the equation for utility
maximization:
MU F / PF MU C / PC
U1
U2
B
Gasoline
2,000 5,000 20,000 (gallons per year)
Number of books 15 6
Sarah Expenditure
$500 = 100 lbs. of food x $2.00/lb. + 15 books x $20/book
10
B
5
l2
l1 Food
0 50 100 200 250 300 350 400 450 500 550 600 (lb./quarter)
20
A
15
10
B
l3
5
l2
l1 Food
0 50 100 200 250 300 350 400 450 500 550 600 (lb./quarter)
Yes!
The Laspeyres index assumes that
consumers do not alter their consumption
patterns as prices change.
Yes!
By increasing purchases of those items that
have become relatively cheaper, and
decreasing purchases of the relatively more
expensive items consumers can achieve the
same level of utility without having to
consume the same bundle of goods.
PFb Ft PCt Ct
PI
PFb Ft PCt Ct
Chapter 3: Consumer Behavior Slide
Cost-of-Living Indexes
Comparing
Comparing the
the Two
Two Indexes
Indexes
Suppose:
Two goods: Food (F) and Clothing (C)
$1,720
LI 344
$500
$1,260
PI 175
$720