Chapter 7 - Consumer behavior. In this chapter, you will see how individual consumers allocate their incomes among the various goods and services available to them. Given a certain budget, how does a consumer decide which goods and services to buy? This chapter will develop a model to answer this question. This chapter will also survey some of the recent insights about consumer behavior provided by the field of behavioral economics. | Consumer Behavior Chapter 7 Chapter Objectives Total utility and marginal utility Law of diminishing marginal utility Marginal utility-to-price ratios Deriving the demand curve Income and substitution effects Appendix: the indifference curve model 7- Utility Diminishing marginal utility (again) Satisfaction obtained from consumption Three characteristics Differs from usefulness Subjective Difficult to quantify 7- Utility Total utility Total satisfaction from a specific quantity Marginal utility Extra satisfaction from an additional unit Law of diminishing marginal utility Explains downward sloping demand 7- Utility Graphically 0 10 20 30 10 8 6 4 2 0 -2 1 2 3 4 5 6 7 1 2 3 4 5 6 7 Total Utility (Utils) Marginal Utility (Utils) (1) Tacos Consumed Per Meal (2) Total Utility, Utils (3) Marginal Utility, Utils 0 1 2 3 4 5 6 7 0 10 18 24 28 30 30 28 ] ] ] ] ] ] ] 10 8 6 4 2 0 -2 TU MU Total Utility Marginal Utility Units Consumed Per Meal Units Consumed Per Meal 7- Theory of Consumer Behavior Key dimensions of the consumer problem Rational behavior Preferences Budget constraint Prices 7- Theory of Consumer Behavior Find utility maximizing combination of goods Utility maximizing rule Allocate income Last dollar spent on each good yields same marginal utility Marginal utility per dollar 7- Numerical Example Combinations of apples and oranges obtainable with an income of $10 (1) Unit of Product (a) Marginal Utility, Utils (a) Marginal Utility, Utils (b) Marginal Utility Per Dollar (MU/Price) (b) Marginal Utility Per Dollar (MU/Price) (2) Apple (product A) Price = $1 (3) Orange (product B) Price = $2 First Second Third Fourth Fifth Sixth Seventh 10 8 7 6 5 4 3 24 20 18 16 12 6 4 10 8 7 6 5 4 3 12 10 9 8 6 3 2 Compare marginal utilities Then compare per dollar - MU/Price Choose the highest Check budget - proceed to next item 7- Numerical Example Combinations of apples and oranges obtainable with an income of $10 (1) Unit of Product (a) Marginal . | Consumer Behavior Chapter 7 Chapter Objectives Total utility and marginal utility Law of diminishing marginal utility Marginal utility-to-price ratios Deriving the demand curve Income and substitution effects Appendix: the indifference curve model 7- Utility Diminishing marginal utility (again) Satisfaction obtained from consumption Three characteristics Differs from usefulness Subjective Difficult to quantify 7- Utility Total utility Total satisfaction from a specific quantity Marginal utility Extra satisfaction from an additional unit Law of diminishing marginal utility Explains downward sloping demand 7- Utility Graphically 0 10 20 30 10 8 6 4 2 0 -2 1 2 3 4 5 6 7 1 2 3 4 5 6 7 Total Utility (Utils) Marginal Utility (Utils) (1) Tacos Consumed Per Meal (2) Total Utility, Utils (3) Marginal Utility, Utils 0 1 2 3 4 5 6 7 0 10 18 24 28 30 30 28 ] ] ] ] ] ] ] 10 8 6 4 2 0 -2 TU MU Total Utility Marginal Utility Units Consumed Per Meal Units Consumed Per Meal 7- Theory .
