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Chapter 07 - Consumer Behavior CHAPTER SEVEN CONSUMER BEHAVIOR CHAPTER OVERVIEW This chapter may be omitted without damaging the continuity or understanding of the material in ensuing chapters. Those instructors who think it important to explain consumer decision-making on a more sophisticated level than that of previous chapters should assign this chapter. It may also be used as an enrichment chapter for brighter students. This chapter may be combined with Chapters 3 and 6. The law of diminishing marginal utility is developed further, leading into a detailed discussion of the theory of consumer choice. The numerical illustrations of the utility-maximizing rule should be viewed as a pedagogical technique, rather than an attempt to portray the actual choice-making process of consumers. When this illustration is explained by order of purchase, the brief algebraic summary of consumer equilibrium should pose no great difficulties for most students. The discussion of the diamond- water paradox helps students look beyond what may be their first conclusions about the importance and value of products. The opportunity cost of time may be considered as a component of product price. This chapter concludes with a simplified integration of time into the theory of consumer behavior. The appendix to this chapter introduces indifference curve analysis for those intending to pursue further study in economics, or for those who desire a more rigorous explanation of consumer choice. This material is linked to the coverage provided in the rest of the chapter by using indifference curve analysis to develop an individuals demand curve for a product. INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Define marginal utility and state the law of diminishing marginal utility. 2. Explain and graph the relationship between marginal utility and total utility. 3. List four assumptions made in the theory of consumer behavior. 4. State the utility-maximizing rule. 5. Use the utility-maximizing rule to determine a consumers spending (and demand curve) when given income, utility, and price data. 6. Use the theory of consumer behavior to define the market shift from videocassettes to DVDs since their introduction in 1997. 7. Explain the diamond-water paradox. 8. Explain how the value of time fits in the theory of consumer behavior and give two examples of implications that result. 9. Describe how the theory of consumer behavior helps us understand different values placed on time. 10. Explain why a cash gift will give the receiver more utility than a noncash gift costing the same amount. 11. Define and identify terms and concepts listed at the end of the chapter.... View Full Document

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