Consumer behavior can be understood in three steps: preferences, budget constraints, and choices. Consumer preferences are represented by indifference curves, which show combinations of goods that provide equal satisfaction. Budget constraints depend on income and prices, forming a budget line. Consumers maximize satisfaction by choosing the bundle on their highest attainable indifference curve that is also on their budget line. This occurs where the marginal rate of substitution between goods equals their price ratio.
This document provides an overview of microeconomics topics related to consumer behavior and demand. It discusses assumptions about consumer preferences including completeness, transitivity, and the idea that more is better than less. Indifference curves and indifference maps are introduced to graphically represent preferences between combinations of goods. The concept of a budget constraint and budget line are explained. Changes in income and prices are examined in terms of how they impact the budget line and consumer choice. Normal and inferior goods as well as Engel curves are defined. Income and substitution effects of price changes on consumption are also summarized.
1. The document discusses consumer behavior theory and indifference curve analysis. It describes how consumers allocate their income among goods and services to maximize satisfaction or utility.
2. Consumer behavior involves three steps - consumer preferences defined by indifference curves, budget constraints determined by income and prices, and consumer choices made to maximize utility subject to the budget constraint.
3. Indifference curves represent all combinations of goods that provide the same level of satisfaction to a consumer. The slope of the indifference curve is the marginal rate of substitution which measures the rate at which a consumer is willing to trade one good for another to maintain the same utility.
This document summarizes key topics in consumer behavior including:
1) It outlines the three steps in studying consumer behavior: understanding consumer preferences, budget constraints, and how preferences and constraints determine consumer choices.
2) It discusses indifference curves and how they represent combinations of goods that provide equal satisfaction. The slope of indifference curves illustrates the marginal rate of substitution.
3) It explains budget constraints and how the budget line represents all combinations of goods that can be purchased given prices and income. Changes in income and prices affect the position of the budget line.
4) Consumer choice is where the budget line is tangent to the highest indifference curve, indicating preferences are maximized subject to the budget constraint.
The document discusses consumer preferences and how consumers make choices. It explains that consumers have preferences that can be represented by indifference curves, and that they face budget constraints determined by their income and prices. It then discusses how consumers will choose the bundle of goods that gives them the highest attainable level of utility or satisfaction, which is where their indifference curve is tangent to their budget constraint, meaning the marginal rate of substitution between goods equals the price ratio. This optimal point balances marginal benefits and costs. Changes in prices or income shift the budget constraint and can change the optimal choice.
This document discusses consumer behavior and the economic theory behind consumer choice. It covers key topics like consumer preferences, budget constraints, indifference curves, marginal rates of substitution, and how consumer choices are determined by preferences within the limits of a budget. Consumer preferences are represented by indifference curves and indifference maps, which show combinations of goods that provide equal satisfaction. Budget constraints depend on income and prices, and are represented by budget lines that indicate affordable combinations of goods. Consumer choice is the combination that maximizes satisfaction given preferences and the budget constraint.
Mba1014 consumers markets elasticity 040513Stephen Ong
This document provides an overview of consumer behavior and elasticity concepts for managerial economics. It discusses factors that influence consumer behavior like tastes, preferences and budget constraints. It explains consumer decision making using indifference curves and how preferences can be represented by utility functions. It also covers elasticity concepts like price elasticity, cross elasticity and income elasticity. The document is intended to help understand how consumer choices are made and how elasticity impacts business revenues.
1. The document discusses consumer preferences and how they are represented using indifference curves and utility functions. It explains how indifference curves illustrate combinations of goods that provide the same level of satisfaction to a consumer.
2. Budget constraints, which depend on prices and income, are introduced. The budget line shows all affordable combinations of two goods. Changes in prices and income shift the budget line.
3. Consumer choice is described as choosing the combination on the highest attainable indifference curve, which must lie on the budget line. This maximizes satisfaction given limited income.
This document provides an overview of microeconomics topics related to consumer behavior and demand. It discusses assumptions about consumer preferences including completeness, transitivity, and the idea that more is better than less. Indifference curves and indifference maps are introduced to graphically represent preferences between combinations of goods. The concept of a budget constraint and budget line are explained. Changes in income and prices are examined in terms of how they impact the budget line and consumer choice. Normal and inferior goods as well as Engel curves are defined. Income and substitution effects of price changes on consumption are also summarized.
1. The document discusses consumer behavior theory and indifference curve analysis. It describes how consumers allocate their income among goods and services to maximize satisfaction or utility.
2. Consumer behavior involves three steps - consumer preferences defined by indifference curves, budget constraints determined by income and prices, and consumer choices made to maximize utility subject to the budget constraint.
3. Indifference curves represent all combinations of goods that provide the same level of satisfaction to a consumer. The slope of the indifference curve is the marginal rate of substitution which measures the rate at which a consumer is willing to trade one good for another to maintain the same utility.
This document summarizes key topics in consumer behavior including:
1) It outlines the three steps in studying consumer behavior: understanding consumer preferences, budget constraints, and how preferences and constraints determine consumer choices.
2) It discusses indifference curves and how they represent combinations of goods that provide equal satisfaction. The slope of indifference curves illustrates the marginal rate of substitution.
3) It explains budget constraints and how the budget line represents all combinations of goods that can be purchased given prices and income. Changes in income and prices affect the position of the budget line.
4) Consumer choice is where the budget line is tangent to the highest indifference curve, indicating preferences are maximized subject to the budget constraint.
The document discusses consumer preferences and how consumers make choices. It explains that consumers have preferences that can be represented by indifference curves, and that they face budget constraints determined by their income and prices. It then discusses how consumers will choose the bundle of goods that gives them the highest attainable level of utility or satisfaction, which is where their indifference curve is tangent to their budget constraint, meaning the marginal rate of substitution between goods equals the price ratio. This optimal point balances marginal benefits and costs. Changes in prices or income shift the budget constraint and can change the optimal choice.
This document discusses consumer behavior and the economic theory behind consumer choice. It covers key topics like consumer preferences, budget constraints, indifference curves, marginal rates of substitution, and how consumer choices are determined by preferences within the limits of a budget. Consumer preferences are represented by indifference curves and indifference maps, which show combinations of goods that provide equal satisfaction. Budget constraints depend on income and prices, and are represented by budget lines that indicate affordable combinations of goods. Consumer choice is the combination that maximizes satisfaction given preferences and the budget constraint.
Mba1014 consumers markets elasticity 040513Stephen Ong
This document provides an overview of consumer behavior and elasticity concepts for managerial economics. It discusses factors that influence consumer behavior like tastes, preferences and budget constraints. It explains consumer decision making using indifference curves and how preferences can be represented by utility functions. It also covers elasticity concepts like price elasticity, cross elasticity and income elasticity. The document is intended to help understand how consumer choices are made and how elasticity impacts business revenues.
1. The document discusses consumer preferences and how they are represented using indifference curves and utility functions. It explains how indifference curves illustrate combinations of goods that provide the same level of satisfaction to a consumer.
2. Budget constraints, which depend on prices and income, are introduced. The budget line shows all affordable combinations of two goods. Changes in prices and income shift the budget line.
3. Consumer choice is described as choosing the combination on the highest attainable indifference curve, which must lie on the budget line. This maximizes satisfaction given limited income.
AE 121 L3 CONSUMER THEORY INTRODUCTION.pdfBrendenKapo
bachelor of business in accountancy, often simply called business, is a field of study that deals with the principles of business, management, and economics.[1] It combines elements of accountancy, finance, marketing, organizational studies, human resource management, and operations. Business studies is a broad subject,[2] where the range of topics is designed to give the student a general overview of the various elements of running a business. The teaching of business studies is known as business education.Business studies can be taken as part of the General Certificate of Secondary Education (GCSE) option for Year 9, Year 10 and Year 11 at secondary school and also can be taken as part of a GCE Advanced Level (A-level) course in Year 12 and Year 13. It includes a range of subjects, which give the student general understanding of the various elements of running a business. Subjects covered include, but are not limited to: Business Organization, People in Business, Marketing, Operations & Production, Finance, and Strategic Management. The University of Cambridge considers business studies not to be a 'traditional academic subject', although taking business studies individually will not disadvantage students as long as it is identified as 'essential' or 'desirable' for the course being applied for. It is also suitable when applying for economics at university, if the college the candidate comes from does not offer the economics A-level individually.Business studies programmes are widely taught in the Republic of Nepal, where it is taught at every colleges of +2 level and also in colleges that provide A-Levels. A number of universities (public and private) are offering business studies programme under the heading of Business Administration.
Indifference curve analysis examines how a rational consumer chooses between two goods based on their preferences and budget constraints. It combines indifference curves, which show combinations of goods that provide equal utility, and budget lines, which show affordable combinations based on prices and income. A change in income or prices shifts the budget line, causing the consumer to change their consumption and move to a new point along their highest possible indifference curve. Specifically, if the price of a normal good increases, both the substitution effect of choosing cheaper alternatives and the income effect of having less purchasing power cause consumption of that good to decrease.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Arif Hossain
Md.Abdul Aual
Risul Islam
Abul Kalam
MD Rasel Mollah
MD Rabiul Islam
The document describes indifference curves and how they relate to consumer preferences between combinations of goods. It provides examples of indifference curves for clothing and food. Indifference curves show combinations of goods a consumer is indifferent between, and slope downward to the right since more is preferred to less. Their shape indicates how willing a consumer is to substitute one good for another. The marginal rate of substitution measures this willingness to substitute and captures the slope of the indifference curve. Perfect substitutes have a constant marginal rate of substitution, while perfect complements have right-angle shaped indifference curves. Utility and utility functions are also introduced to numerically represent satisfaction from market baskets. Budget constraints limit the combinations of goods that are affordable.
This document discusses concepts related to consumer behavior and choice. It explains that consumers seek to maximize their utility or satisfaction given budget constraints. Consumers reveal their preferences through the choices they make between different baskets of goods. The theory assumes consumers rationally choose the combination of goods that puts them on the highest possible indifference curve. Key concepts covered include indifference curves, budget constraints, revealed preference, marginal utility, and how consumers allocate their income to maximize satisfaction.
Indifference curve analysis uses indifference curves and budget constraints to represent consumer preferences and determine consumer equilibrium. Indifference curves depict combinations of goods that provide equal satisfaction, while budget constraints show affordable combinations given prices and income. Consumer equilibrium occurs where an indifference curve is tangent to the budget constraint, indicating the most preferred affordable combination of goods.
The document discusses consumer preferences and choice. It defines utility as the satisfaction derived from consumption and explains the concepts of total utility, marginal utility, and diminishing marginal utility. It contrasts cardinal and ordinal utility analysis, discussing indifference curves and how consumers seek to maximize utility subject to their budget constraint. The summary also mentions revealed preference theory, consumer equilibrium conditions, and how consumer surplus is measured as the difference between the maximum price consumers are willing to pay versus the actual price.
Consumer Behaviour And Consumer Equilibrium ShrutiJain330
Consumer behavior and equilibrium can be analyzed using utility theory and indifference curves. Utility refers to the satisfaction received from consuming goods, with marginal utility declining as consumption increases per the law of diminishing marginal utility. Indifference curves graph combinations of goods that provide equal utility. The budget line shows affordable combinations given prices and income. Consumer equilibrium occurs where the marginal rate of substitution between goods equals the price ratio, and is at the highest indifference curve possible given the budget.
This document summarizes key concepts related to consumer choice theory in microeconomics, including:
1) Budget constraints define all combinations of goods that can be purchased given income. A budget line shows feasible combinations graphically.
2) Utility is maximized when marginal rate of substitution between goods equals their price ratio, satisfying both budget and preference constraints.
3) Managers can strategically influence choices by changing preferences through advertising, or the budget line through pricing, like discounts or quantity incentives.
Consumer preference and choice(production theory)Ujjwal 'Shanu'
Consumer preferences and choices are based on the utility or satisfaction derived from consuming goods. There are two views on utility - the cardinal view which measures utility in quantifiable units, and the ordinal view which ranks preferences. The law of diminishing marginal utility and equimarginal utility principle explain how consumption changes with price. Indifference curves illustrate preferences graphically on a budget constraint. Consumer equilibrium maximizes utility subject to the budget. Revealed preference theory observes consumer behavior. Consumer surplus measures the benefit consumers gain when price is below what they are willing to pay.
The document provides an overview of consumer theory and the budget constraint in microeconomics. It discusses how consumers maximize utility given their preferences for goods and a budget constraint determined by income and prices. Specifically, it defines the budget constraint graphically using indifference curves, explains how the slope of the budget line represents the trade-off between goods, and discusses how taxes, subsidies and rationing can impact the budget constraint. It also outlines the key assumptions of consumer preferences including completeness, consistency, non-satiation, and diminishing marginal rate of substitution.
Explain the difference between microeconomics and macroeconomicsMonzur Mishu
The document explains the concepts of equilibrium, surpluses, and shifts in supply and demand. It defines equilibrium as the price where quantity demanded equals quantity supplied. A surplus occurs when quantity supplied exceeds quantity demanded, resulting in a price above the equilibrium. The effects of changes in supply and demand are shown using diagrams: an increase in demand or supply shifts the curve right, raising the equilibrium price and quantity, while a decrease shifts it left, lowering price and quantity.
This document discusses consumer theory and the consumer behavior model. It covers utility functions, marginal utility, indifference curves, budget constraints, and optimal consumer choice. The key points are:
1) Consumers seek to maximize utility or satisfaction subject to budget and other constraints. Utility functions and indifference curves are used to model consumer preferences.
2) Marginal utility measures the additional satisfaction from consuming one more unit of a good. It is subject to the principle of diminishing marginal utility.
3) Consumers face budget constraints that limit their consumption choices to affordable bundles of goods. They aim to reach the highest indifference curve possible given their budget.
4) At the optimal choice, the marginal rate of
1) Lecture 6 and 7 discuss the theory of consumer choice, including consumer utility, preferences, indifference curves, budget constraints, and optimal consumption bundles.
2) Consumer utility measures satisfaction from consuming goods, with marginal utility diminishing as consumption increases. Indifference curves represent bundles providing equal utility.
3) A consumer's budget constraint shows affordable combinations given income and prices. The optimal choice occurs where the highest indifference curve is tangent to the budget line.
This document discusses theories of consumer behavior, including:
1. It outlines two approaches to utility - the cardinal and ordinal approaches. The cardinal approach measures utility numerically while the ordinal only ranks preferences.
2. It describes the law of diminishing marginal utility, which states that consuming successive units of a good provides less additional satisfaction.
3. It explains how consumers maximize utility by allocating their budget in a way that equalizes the marginal utility per dollar spent across different goods.
4. Indifference curves and budget constraints are introduced to graphically represent consumer preferences and spending limits under the ordinal approach. The point of maximum utility occurs where the budget line is tangent to the highest indifference curve.
The document discusses consumer behavior theory and how consumers allocate limited incomes among goods and services to maximize satisfaction. It covers consumer preferences using indifference curves and marginal rate of substitution, budget constraints using budget lines, and consumer choice where consumers maximize satisfaction by equating the marginal rate of substitution to the price ratio at the point of tangency between the budget line and indifference curve.
This document discusses indifference curves and their use in analyzing consumer choice and utility maximization. It begins by explaining the concepts of cardinal and ordinal utility. It then covers key aspects of indifference curve analysis including the properties and shape of indifference curves, indifference maps, budget constraints, consumer equilibrium, substitution and income effects, and Engel curves. The document provides definitions and diagrams to illustrate these microeconomics concepts.
Consumer theory helps understand how individuals make choices given limited budgets to maximize satisfaction or utility. It assumes consumers are rational and want to maximize utility subject to budget constraints. There are two main approaches - the cardinal and ordinal theories. The cardinal theory assumes utility is quantitatively measurable while the ordinal theory only requires preferences can be ranked. Both use concepts like total utility, marginal utility, indifference curves, and budget constraints to model consumer choice and derive the downward sloping demand curve. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from each additional unit decreases. This forms the basis for consumer demand curves and many economic implications.
The document discusses concepts related to consumer behavior and demand. It defines key terms like bundle, budget, budget set, budget line, indifference curve, and demand curve. It explains that a consumer is in equilibrium when their preferred bundle is where the budget line is tangent to the highest indifference curve possible. The law of demand and determinants of demand like price, income, tastes are also summarized. Shifts and movements along the demand curve are defined, with shifts occurring due to non-price factors and movements due to price changes.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
AE 121 L3 CONSUMER THEORY INTRODUCTION.pdfBrendenKapo
bachelor of business in accountancy, often simply called business, is a field of study that deals with the principles of business, management, and economics.[1] It combines elements of accountancy, finance, marketing, organizational studies, human resource management, and operations. Business studies is a broad subject,[2] where the range of topics is designed to give the student a general overview of the various elements of running a business. The teaching of business studies is known as business education.Business studies can be taken as part of the General Certificate of Secondary Education (GCSE) option for Year 9, Year 10 and Year 11 at secondary school and also can be taken as part of a GCE Advanced Level (A-level) course in Year 12 and Year 13. It includes a range of subjects, which give the student general understanding of the various elements of running a business. Subjects covered include, but are not limited to: Business Organization, People in Business, Marketing, Operations & Production, Finance, and Strategic Management. The University of Cambridge considers business studies not to be a 'traditional academic subject', although taking business studies individually will not disadvantage students as long as it is identified as 'essential' or 'desirable' for the course being applied for. It is also suitable when applying for economics at university, if the college the candidate comes from does not offer the economics A-level individually.Business studies programmes are widely taught in the Republic of Nepal, where it is taught at every colleges of +2 level and also in colleges that provide A-Levels. A number of universities (public and private) are offering business studies programme under the heading of Business Administration.
Indifference curve analysis examines how a rational consumer chooses between two goods based on their preferences and budget constraints. It combines indifference curves, which show combinations of goods that provide equal utility, and budget lines, which show affordable combinations based on prices and income. A change in income or prices shifts the budget line, causing the consumer to change their consumption and move to a new point along their highest possible indifference curve. Specifically, if the price of a normal good increases, both the substitution effect of choosing cheaper alternatives and the income effect of having less purchasing power cause consumption of that good to decrease.
Macro Economics
For downloading this contact- bikashkumar.bk100@gmail.com
Prepared by Students of University of Rajshahi
Arif Hossain
Md.Abdul Aual
Risul Islam
Abul Kalam
MD Rasel Mollah
MD Rabiul Islam
The document describes indifference curves and how they relate to consumer preferences between combinations of goods. It provides examples of indifference curves for clothing and food. Indifference curves show combinations of goods a consumer is indifferent between, and slope downward to the right since more is preferred to less. Their shape indicates how willing a consumer is to substitute one good for another. The marginal rate of substitution measures this willingness to substitute and captures the slope of the indifference curve. Perfect substitutes have a constant marginal rate of substitution, while perfect complements have right-angle shaped indifference curves. Utility and utility functions are also introduced to numerically represent satisfaction from market baskets. Budget constraints limit the combinations of goods that are affordable.
This document discusses concepts related to consumer behavior and choice. It explains that consumers seek to maximize their utility or satisfaction given budget constraints. Consumers reveal their preferences through the choices they make between different baskets of goods. The theory assumes consumers rationally choose the combination of goods that puts them on the highest possible indifference curve. Key concepts covered include indifference curves, budget constraints, revealed preference, marginal utility, and how consumers allocate their income to maximize satisfaction.
Indifference curve analysis uses indifference curves and budget constraints to represent consumer preferences and determine consumer equilibrium. Indifference curves depict combinations of goods that provide equal satisfaction, while budget constraints show affordable combinations given prices and income. Consumer equilibrium occurs where an indifference curve is tangent to the budget constraint, indicating the most preferred affordable combination of goods.
The document discusses consumer preferences and choice. It defines utility as the satisfaction derived from consumption and explains the concepts of total utility, marginal utility, and diminishing marginal utility. It contrasts cardinal and ordinal utility analysis, discussing indifference curves and how consumers seek to maximize utility subject to their budget constraint. The summary also mentions revealed preference theory, consumer equilibrium conditions, and how consumer surplus is measured as the difference between the maximum price consumers are willing to pay versus the actual price.
Consumer Behaviour And Consumer Equilibrium ShrutiJain330
Consumer behavior and equilibrium can be analyzed using utility theory and indifference curves. Utility refers to the satisfaction received from consuming goods, with marginal utility declining as consumption increases per the law of diminishing marginal utility. Indifference curves graph combinations of goods that provide equal utility. The budget line shows affordable combinations given prices and income. Consumer equilibrium occurs where the marginal rate of substitution between goods equals the price ratio, and is at the highest indifference curve possible given the budget.
This document summarizes key concepts related to consumer choice theory in microeconomics, including:
1) Budget constraints define all combinations of goods that can be purchased given income. A budget line shows feasible combinations graphically.
2) Utility is maximized when marginal rate of substitution between goods equals their price ratio, satisfying both budget and preference constraints.
3) Managers can strategically influence choices by changing preferences through advertising, or the budget line through pricing, like discounts or quantity incentives.
Consumer preference and choice(production theory)Ujjwal 'Shanu'
Consumer preferences and choices are based on the utility or satisfaction derived from consuming goods. There are two views on utility - the cardinal view which measures utility in quantifiable units, and the ordinal view which ranks preferences. The law of diminishing marginal utility and equimarginal utility principle explain how consumption changes with price. Indifference curves illustrate preferences graphically on a budget constraint. Consumer equilibrium maximizes utility subject to the budget. Revealed preference theory observes consumer behavior. Consumer surplus measures the benefit consumers gain when price is below what they are willing to pay.
The document provides an overview of consumer theory and the budget constraint in microeconomics. It discusses how consumers maximize utility given their preferences for goods and a budget constraint determined by income and prices. Specifically, it defines the budget constraint graphically using indifference curves, explains how the slope of the budget line represents the trade-off between goods, and discusses how taxes, subsidies and rationing can impact the budget constraint. It also outlines the key assumptions of consumer preferences including completeness, consistency, non-satiation, and diminishing marginal rate of substitution.
Explain the difference between microeconomics and macroeconomicsMonzur Mishu
The document explains the concepts of equilibrium, surpluses, and shifts in supply and demand. It defines equilibrium as the price where quantity demanded equals quantity supplied. A surplus occurs when quantity supplied exceeds quantity demanded, resulting in a price above the equilibrium. The effects of changes in supply and demand are shown using diagrams: an increase in demand or supply shifts the curve right, raising the equilibrium price and quantity, while a decrease shifts it left, lowering price and quantity.
This document discusses consumer theory and the consumer behavior model. It covers utility functions, marginal utility, indifference curves, budget constraints, and optimal consumer choice. The key points are:
1) Consumers seek to maximize utility or satisfaction subject to budget and other constraints. Utility functions and indifference curves are used to model consumer preferences.
2) Marginal utility measures the additional satisfaction from consuming one more unit of a good. It is subject to the principle of diminishing marginal utility.
3) Consumers face budget constraints that limit their consumption choices to affordable bundles of goods. They aim to reach the highest indifference curve possible given their budget.
4) At the optimal choice, the marginal rate of
1) Lecture 6 and 7 discuss the theory of consumer choice, including consumer utility, preferences, indifference curves, budget constraints, and optimal consumption bundles.
2) Consumer utility measures satisfaction from consuming goods, with marginal utility diminishing as consumption increases. Indifference curves represent bundles providing equal utility.
3) A consumer's budget constraint shows affordable combinations given income and prices. The optimal choice occurs where the highest indifference curve is tangent to the budget line.
This document discusses theories of consumer behavior, including:
1. It outlines two approaches to utility - the cardinal and ordinal approaches. The cardinal approach measures utility numerically while the ordinal only ranks preferences.
2. It describes the law of diminishing marginal utility, which states that consuming successive units of a good provides less additional satisfaction.
3. It explains how consumers maximize utility by allocating their budget in a way that equalizes the marginal utility per dollar spent across different goods.
4. Indifference curves and budget constraints are introduced to graphically represent consumer preferences and spending limits under the ordinal approach. The point of maximum utility occurs where the budget line is tangent to the highest indifference curve.
The document discusses consumer behavior theory and how consumers allocate limited incomes among goods and services to maximize satisfaction. It covers consumer preferences using indifference curves and marginal rate of substitution, budget constraints using budget lines, and consumer choice where consumers maximize satisfaction by equating the marginal rate of substitution to the price ratio at the point of tangency between the budget line and indifference curve.
This document discusses indifference curves and their use in analyzing consumer choice and utility maximization. It begins by explaining the concepts of cardinal and ordinal utility. It then covers key aspects of indifference curve analysis including the properties and shape of indifference curves, indifference maps, budget constraints, consumer equilibrium, substitution and income effects, and Engel curves. The document provides definitions and diagrams to illustrate these microeconomics concepts.
Consumer theory helps understand how individuals make choices given limited budgets to maximize satisfaction or utility. It assumes consumers are rational and want to maximize utility subject to budget constraints. There are two main approaches - the cardinal and ordinal theories. The cardinal theory assumes utility is quantitatively measurable while the ordinal theory only requires preferences can be ranked. Both use concepts like total utility, marginal utility, indifference curves, and budget constraints to model consumer choice and derive the downward sloping demand curve. The law of diminishing marginal utility states that as consumption of a good increases, the marginal utility from each additional unit decreases. This forms the basis for consumer demand curves and many economic implications.
The document discusses concepts related to consumer behavior and demand. It defines key terms like bundle, budget, budget set, budget line, indifference curve, and demand curve. It explains that a consumer is in equilibrium when their preferred bundle is where the budget line is tangent to the highest indifference curve possible. The law of demand and determinants of demand like price, income, tastes are also summarized. Shifts and movements along the demand curve are defined, with shifts occurring due to non-price factors and movements due to price changes.
Vicinity Jobs’ data includes more than three million 2023 OJPs and thousands of skills. Most skills appear in less than 0.02% of job postings, so most postings rely on a small subset of commonly used terms, like teamwork.
Laura Adkins-Hackett, Economist, LMIC, and Sukriti Trehan, Data Scientist, LMIC, presented their research exploring trends in the skills listed in OJPs to develop a deeper understanding of in-demand skills. This research project uses pointwise mutual information and other methods to extract more information about common skills from the relationships between skills, occupations and regions.
South Dakota State University degree offer diploma Transcriptynfqplhm
办理美国SDSU毕业证书制作南达科他州立大学假文凭定制Q微168899991做SDSU留信网教留服认证海牙认证改SDSU成绩单GPA做SDSU假学位证假文凭高仿毕业证GRE代考如何申请南达科他州立大学South Dakota State University degree offer diploma Transcript
In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
Enhancing Asset Quality: Strategies for Financial Institutionsshruti1menon2
Ensuring robust asset quality is not just a mere aspect but a critical cornerstone for the stability and success of financial institutions worldwide. It serves as the bedrock upon which profitability is built and investor confidence is sustained. Therefore, in this presentation, we delve into a comprehensive exploration of strategies that can aid financial institutions in achieving and maintaining superior asset quality.
New Visa Rules for Tourists and Students in Thailand | Amit Kakkar Easy VisaAmit Kakkar
Discover essential details about Thailand's recent visa policy changes, tailored for tourists and students. Amit Kakkar Easy Visa provides a comprehensive overview of new requirements, application processes, and tips to ensure a smooth transition for all travelers.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
办理美国UNCC毕业证书制作北卡大学夏洛特分校假文凭定制Q微168899991做UNCC留信网教留服认证海牙认证改UNCC成绩单GPA做UNCC假学位证假文凭高仿毕业证GRE代考如何申请北卡罗莱纳大学夏洛特分校University of North Carolina at Charlotte degree offer diploma Transcript
3. Consumer Behavior
● theory of consumer behavior Description of how
consumers allocate incomes among different goods and
services to maximize their well-being.
Consumer behavior is best understood in three distinct steps:
1. Consumer preferences
2. Budget constraints
3. Consumer choices
4. CONSUMER PREFERENCES
3.1
Market Baskets
● market basket (or bundle)
List with specific quantities of one or more goods.
TABLE 3.1 Alternative Market Baskets
A 20 30
B 10 50
D 40 20
E 30 40
G 10 20
H 10 40
Market Basket Units of Food Units of Clothing
To explain the theory of consumer behavior, we will ask
whether consumers prefer one market basket to
another.
5. CONSUMER PREFERENCES
3.1
Some Basic Assumptions about Preferences
1. Completeness:
Preferences are assumed to be complete.
In other words, consumers can compare and rank all possible
baskets.
Example: for any two market baskets A and B, a consumer will
prefer A to B (A>B), will prefer B to A (B>A ), or will be indifferent
between the two (A=B).
By indifferent we mean that a person will be equally satisfied
with either basket.
Note that these preferences ignore costs. A consumer might
prefer steak to hamburger but buy hamburger because it is
cheaper.
6. CONSUMER PREFERENCES
3.1
Some Basic Assumptions about Preferences
2. Transitivity: Preferences are transitive.
Transitivity means that if a consumer prefers basket A to basket
B (A>B) and basket B to basket C (B>C), then the consumer
also prefers A to C (A>C). Transitivity is normally regarded as
necessary for consumer consistency.
3. More is better than less: Goods are assumed to be
desirable—i.e., to be good.
Consequently, consumers always prefer more of any good
to less. In addition, consumers are never satisfied or satiated;
more is always better, even if just a little better. This
assumption is made for pedagogic reasons; namely, it simplifies
the graphical analysis.
Of course, some goods, such as air pollution, may be
undesirable, and consumers will always prefer less. We ignore
these “bads” in the context of our immediate discussion.
7. Describing Individual Preferences
Because more of each good
is preferred to less, we can
compare market baskets in
the shaded areas.
Basket A is clearly preferred
to basket G (A>G), while E is
clearly preferred to A (E>A).
However, A cannot be
compared with B, D, or H
without additional
information.
What kind of additional
information?
CONSUMER PREFERENCES
3.1
Figure 3.1
Indifference Curves
8. The indifference curve U1
that passes through market
basket A shows all baskets
that give the consumer the
same level of satisfaction
as does market basket A;
these include baskets B
and D.
An Indifference Curve
CONSUMER PREFERENCES
3.1
Figure 3.2
Indifference Curves
● indifference curve Curve representing all combinations of market
baskets that provide a consumer with the same level of satisfaction.
Our consumer prefers
basket E, which lies above
U1, to A, but prefers A to H
or G, which lie below U1.
9. An Indifference Map
CONSUMER PREFERENCES
3.1
Figure 3.3
Indifference Maps
● indifference map Graph containing a set of indifference curves
showing the market baskets among which a consumer is indifferent.
Any market basket on
indifference curve U3,
such as basket A, is
preferred to any
basket on curve U2
(e.g., basket B),
which in turn is
preferred to any
basket on U1, such as
D.
10. If indifference curves U1
and U2 intersect, one of the
assumptions of consumer
theory is violated.
Indifference Curves Cannot Intersect
CONSUMER PREFERENCES
3.1
Figure 3.4
Indifference Maps
According to this diagram,
the consumer should be
indifferent among market
baskets A, B, and D. Yet B
should be preferred to D
because B has more of
both goods.
11. The magnitude of the slope of an
indifference curve measures the
consumer’s marginal rate of
substitution (MRS) between two goods.
The Marginal Rate of Substitution
CONSUMER PREFERENCES
3.1
Figure 3.5
The Marginal Rate of Substitution
In this figure, the MRS between clothing
(C) and food (F) falls from 6 (between A
and B) to 4 (between B and D) to 2
(between D and E) to 1 (between E and
G).
Convexity The decline in the MRS
reflects a diminishing marginal rate of
substitution. When the MRS
diminishes along an indifference curve,
the curve is convex.
● marginal rate of substitution (MRS) Maximum amount of a good
that a consumer is willing to give up in order to obtain one additional
unit of another good.
MRS = -6/1
MRS = -4/1
MRS = -2/1
MRS = -1/1
Diminishing
MRS
12. CONSUMER PREFERENCES
3.1
Perfect Substitutes and Perfect Complements
● perfect substitutes Two goods for which the marginal rate
of substitution of one for the other is a constant.
● perfect complements Two goods for which the MRS is
zero or infinite; the indifference curves are shaped as right
angles.
13. In (a), Bob views orange juice and
apple juice as perfect substitutes:
He is always indifferent between a
glass of one and a glass of the
other.
Perfect Substitutes and Perfect Complements
CONSUMER PREFERENCES
3.1
Figure 3.6
Perfect Substitutes and Perfect Complements
In (b), Jane views left shoes and
right shoes as perfect complements:
An additional left shoe gives her no
extra satisfaction unless she also
obtains the matching right shoe.
14. CONSUMER PREFERENCES
3.1
A utility function can be
represented by a set of
indifference curves, each with
a numerical indicator.
This figure shows three
indifference curves (with utility
levels of 25, 50, and 100,
respectively) associated with
the utility function FC.
Utility and Utility Functions
● utility Numerical score representing the satisfaction that a
consumer gets from a given market basket.
● utility function Formula that assigns a level of utility to individual
market baskets.
Utility Functions and Indifference Curves
Figure 3.8
u(F,C) = FC
However, know by how much
one is preferred to the other?
15. CONSUMER PREFERENCES
3.1
A cross-country
comparison shows that
individuals living in
countries with higher
GDP per capita are on
average happier than
those living in countries
with lower per-capita
GDP.
Ordinal versus Cardinal Utility
● ordinal utility function Utility function that generates a ranking of market
baskets in order of most to least preferred- like what we observe in the previous
slide → it does not indicate by how much one is preferred to another..
● cardinal utility function Utility function describing by how much one
market basket is preferred to another→ no way of telling whether a person
gets twice as much satisfaction from one market basket as from another.
Income and Happiness
Figure 3.9
18. Clothing (C)
BUDGET CONSTRAINTS
3.2
The table shows market baskets associated with the budget line
F + 2C = $80
The Budget Line
● budget constraints Constraints that consumers face
as a result of limited incomes.
● budget line All combinations of goods for which the total
amount of money spent is equal to income.
TABLE 3.2 Market Baskets and the Budget Line
A 0 40 $80
B 20 30 $80
D 40 20 $80
E 60 10 $80
G 80 0 $80
Market Basket Food (F) Total Spending
F C
P F P C I
+ = (3.1)
19. BUDGET CONSTRAINTS
3.2
A budget line describes the
combinations of goods that can be
purchased given the consumer’s
income and the prices of the goods.
Line AG (which passes through
points B, D, and E) shows the
budget associated with an income
of $80, a price of food of PF = $1 per
unit, and a price of clothing of PC =
$2 per unit.
The slope of the budget line
(measured between points B and D)
is −PF/PC = −10/20 = −1/2.
The Budget Line
A Budget Line
Figure 3.10
20. BUDGET CONSTRAINTS
3.2
Income Changes A change in
income (with prices unchanged)
causes the budget line to shift
parallel to the original line (L1).
When the income of $80 (on L1) is
increased to $160, the budget line
shifts outward to L2.
If the income falls to $40, the line
shifts inward to L3.
The Effects of Changes in Income and Prices
Effects of a Change in Income on the
Budget Line
Figure 3.11
21. BUDGET CONSTRAINTS
3.2
Price Changes A change in the
price of one good (with income
unchanged) causes the budget line
to rotate about one intercept.
When the price of food falls from
$1.00 to $0.50, the budget line
rotates outward from L1 to L2.
However, when the price increases
from $1.00 to $2.00, the line rotates
inward from L1 to L3.
The Effects of Changes in Income and Prices
Effects of a Change in Price on the
Budget Line
Figure 3.12
22. CONSUMER CHOICE
3.3
A consumer maximizes satisfaction
by choosing market basket A. At
this point, the budget line and
indifference curve U2 are tangent.
No higher level of satisfaction (e.g.,
market basket D) can be attained.
At A, the point of maximization, the
MRS between the two goods equals
the price ratio.
At B, however, because the MRS =
1 is greater than the price ratio (1/2),
satisfaction is not maximized.
Maximizing Consumer Satisfaction
Figure 3.13
The maximizing market basket must satisfy two conditions:
1. It must be located on the budget line.
2. It must give the consumer the most preferred combination
of goods and services.
At what point, a consumer
will have maximum utility?
23. CONSUMER CHOICE
3.3
● marginal benefit Benefit from the consumption of one
additional unit of a good.
● marginal cost Cost of one additional unit of a good.
The condition given in equation (3.3) illustrates the kind of
optimization conditions that arise in economics. In this instnace,
satisfaction is maximized when the marginal benefit—the
benefit associated with the consumption of one additional unit of
food—is equal to the marginal cost—the cost of the additional
unit of food. The marginal benefit is measured by the MRS.
Satisfaction is maximized (given the budget constraint) at the
point where:
MRS /
F C
P P
= (3.3)
24. CONSUMER CHOICE
3.3
When the consumer’s marginal
rate of substitution is not equal to
the price ratio for all levels of
consumption, a corner solution
arises. The consumer
maximizes satisfaction by
consuming only one of the two
goods.
Given budget line AB, the highest
level of satisfaction is achieved at
B on indifference curve U1, where
the MRS (of ice cream for frozen
yogurt) is greater than the ratio
of the price of ice cream to the
price of frozen yogurt.
Corner Solutions
A Corner Solution
Figure 3.15
● corner solution : Situation in which the marginal rate of
substitution of one good for another in a chosen market
basket is not equal to the slope of the budget line.
25. REVEALED PREFERENCE
3.4
Can we make a direct comparison between baskets A and D? Are they
in the same budget line?
all baskets above
and to the right of A are
preferred to A. Why?
What about the
indifference curve?
26. REVEALED PREFERENCE
3.4
Suppose the relative prices of food
and clothing change → the new
budget line is l2 The individual then
chooses market basket B than D →
B is preferred to D
Because A is preferred to B and B is
preferred to D,
We conclude that A is preferred
to D.
Can we make a direct comparison between baskets A and D? Are they
in the same budget line?
all baskets above
and to the right of A are
preferred to A. Why?- goods
rather than bads
So, the indifference curve
passing through A must lie in
the unshaded area.
27. REVEALED PREFERENCE
3.4
Facing budget line l3 the
individual chooses E, which is
revealed to be preferred to A
(because A could have been
chosen).
Likewise, facing line l4, the
individual chooses G which is
also revealed to be preferred to
A.
Whereas A is preferred to all
market baskets in the green-
shaded area, all market baskets
in the pink-shaded area are
preferred to A.
Revealed Preference:
Four Budget Lines
Figure 3.18
The revealed preference approach is valuable as a
means of checking whether individual choices are
consistent.
28. MARGINAL UTILITY AND CONSUMER CHOICE
3.5
● marginal utility (MU) Additional satisfaction obtained
from consuming one additional unit of a good.
● diminishing marginal utility Principle that as more of a good is
consumed, the consumption of additional amounts will yield
smaller additions to utility.
( / ) MU /MU
C F
F C
− =
0 MU ( ) MU ( )
F C
F C
= +
MRS MU /MU
F C
= (3.5)
(3.6)
(3.7)
Because all points on an indifference curve generate the
same level of utility, the total gain in utility associated with
the increase in F must balance the loss
due to the lower consumption of C.
MRS is the ratio of the
marginal utility of F to the
marginal utility of C.
29. MARGINAL UTILITY AND CONSUMER CHOICE
3.5
MRS MU /MU
F C
=
MRS /
P P
F C
=
MU /MU /
P P
F F
C C
=
MU / MU /
P P
F F C C
=
We also know that when consumers maximize their satisfaction,
the MRS of F for C is equal to the ratio of the prices of the two
goods.
MRS is the ratio of the marginal utility of F to the
marginal utility of C.
Combine these two equations:
Utility maximization is achieved when the budget is allocated so
that the marginal utility per dollar of expenditure is the same for
each good → equal marginal principle.