economy lecture consumer behavior
DESCRIPTION
Consumer BehaviorTRANSCRIPT
![Page 1: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/1.jpg)
Consumer Behavior andUtility Maximization
ECONOMYHenry Prudente
![Page 2: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/2.jpg)
THE LAW OF DEMANDA Closer Look…
The Income Effect A lower price frees income for additional purchases - and vice versa
The Substitution Effect A lower price relative to other goods attracts new buyers - and vice versa
![Page 3: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/3.jpg)
LAW OF DIMINISHINGMARGINAL UTILITY
• Utility Defined•Want satisfying power
• Subjective Nature• Difficult to QuantifyTotal Utility- total satisfaction
Marginal Utility-extra satisfaction
graphically examined...
![Page 4: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/4.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
01
010
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 5: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/5.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
01
010 10
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 6: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/6.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
012
01018
10 8
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 7: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/7.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
0123
0101824
10 8 6
0 1 2 3 4 5 6 7
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
1 2 3 4 5 6 7
![Page 8: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/8.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
01234
010182428
10 8 6 4 Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 9: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/9.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
012345
01018242830
10 8 6 4 2
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 10: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/10.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
0123456
0101824283030
10 8 6 4 2 0
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 11: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/11.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
01234567
010182428303028
10 8 6 4 2 0 -2
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
TU
MU
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
![Page 12: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/12.jpg)
TOTAL AND MARGINAL UTILITYTacos
consumedper meal
TotalUtility,Utils
MarginalUtility,Utils
01234567
010182428303028
10 8 6 4 2 0 -2
Units consumed per meal
Units consumed per meal
30
20
10
To
tal
Uti
lity
(u
tils
)M
arg
ina
l U
tili
ty (
uti
ls)
10 8 6 4 2 0 -2
TU
MU
0 1 2 3 4 5 6 7
1 2 3 4 5 6 7
ObserveDiminishing
MarginalUtility
![Page 13: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/13.jpg)
THEORY OF CONSUMER BEHAVIOR
Consumer Choice and Budget Constraint
• Rational Behavior•Maximize utility
• Clear-Cut Preferences• Subject to a Budget
Constraint• Responds to Price
Changes
![Page 14: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/14.jpg)
THEORY OF CONSUMER BEHAVIOR
Utility Maximizing Rule
The consumer’s money income should be allocated so that the last dollar spent on each product yields the same amount of extra (marginal) utility.
![Page 15: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/15.jpg)
Algebraic Restatement of theUtility Maximization Rule
MU of product A
Price of A
MU of product B
Price of B=
UTILITY MAXIMIZING COMBINATION
![Page 16: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/16.jpg)
APPLICATIONS AND EXTENSIONS
DVDs and DVD PlayersDVDs have greater utility than video cassettes
The Diamond-Water ParadoxWater has greater total utility than diamonds even if the price of diamonds is greater
The Value of TimeAmericans are “wasteful” of goods while economical with time, with the opposite occurring in developing nations
![Page 17: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/17.jpg)
APPLICATIONS AND EXTENSIONS
Cash and Noncash GiftsMost people prefer cash gifts to noncash gifts because they have more choice
![Page 18: ECONOMY Lecture Consumer Behavior](https://reader034.vdocuments.us/reader034/viewer/2022042718/55cf91e3550346f57b917167/html5/thumbnails/18.jpg)
income effectsubstitution effectutilitytotal utilitymarginal utilitylaw of diminishing marginal utilityrational behaviorbudget constraintutility-maximizing rule