Submitted by: Submitted by rosaaarenas
Views: 151
Words: 4523
Pages: 19
Category: Literature
Date Submitted: 01/11/2013 02:14 AM
Topic 1
Consumer Behavior
1
Topics to be Discussed
Budget constraints
Consumer preferences
The utility function
Consumer choice
Price and income changes
Substitutes and complements
2
Introduction
How are consumer preferences used to
determine demand?
How do consumers allocate income to
the purchase of different goods?
How do consumers with limited income
decide what to buy?
3
Consumer Behavior
The theory of consumer behavior can be
used to help answer these and many
more questions
Theory of consumer behavior
The explanation of how consumers allocate
income to the purchase of different goods
and services
4
Consumer Behavior
There are three steps involved in the
study of consumer behavior
1. Consumer Preferences
To describe how and why people prefer
one good to another
1. Budget Constraints
People have limited incomes
5
Consumer Behavior
3. Given preferences and limited incomes,
what amount and type of goods will be
purchased?
What combination of goods will consumers
buy to maximize their satisfaction?
6
Consumer Preferences
How might a consumer compare different
groups of items available for purchase?
A market basket is a collection of one or
more commodities
Individuals can choose between market
baskets containing different goods
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Consumer Preferences – Basic
Assumptions
1. Preferences are complete
Consumers can rank market baskets
1. Preferences are transitive
If they prefer A to B, and B to C, they must
prefer A to C
1. Consumers always prefer more of any
good to less
More is better
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Consumer Preferences
Consumer preferences can be
represented graphically using
indifference curves
Indifference curves represent all
combinations of market baskets that the
person is indifferent to
A person will be equally satisfied with either
choice
9
Indifference Curves:
An Example...