Ch 4 - Consumer Behaviour & Rational Choice

Ch 4 - Consumer Behaviour & Rational Choice - CHAPTER 4...

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Studying Consumer Behaviour: - Consumer Preferences – to describe how & why people prefer one good to another - Budget Constraints – people have limited incomes - Preferences + Constraints = Consumer Choice – what combo of goods will consumers buy to maximize their satisfaction Market Baskets: - collection of +1 commodities - one market basket may be preferred over another mkt basket containing a different combo of goods - consumers always prefer more of any good to less Theory of Consumer Behaviour: - preferences can be compared & rank-ordered - preferences are transitive - more the merrier – rational buyers prefer more goods to less - diminishing marginal utility Indifference Curves: - each mrkt basket on I 1 is equally desirable - a consumer has many indifference curves - mkt basket on Higher indifference curve (I 2 ) is preferred over I 1 Characteristics: - a consumer has many indifference curves - mkt baskets on higher indifference curves are preferred to mkt baskets on lower indifference curves - every indifference curve must slope downward & to the right - indifference curves cannot intersect - indifference curves CANNOT intersect = if the consumer is indifferent between choices A & C, this implies that she must be therefore, indifference curves cannot intersect
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This note was uploaded on 04/18/2008 for the course MGCR 293 taught by Professor Salmasi during the Fall '08 term at McGill.

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Ch 4 - Consumer Behaviour & Rational Choice - CHAPTER 4...

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