lecture5 - consumer choice

Lecture5 consumer - opic 4 Consumer Choice(1 Topic 4 Consumer Choice(1 Preferences and constraints on choice USC Marshall Consumer choice • To

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Unformatted text preview: opic 4: Consumer Choice (1) Topic 4: Consumer Choice (1) Preferences and constraints on choice USC Marshall Consumer choice • To describe consumer behavior, we need two components – What the consumer would like to do • Description of preferences and the concept of utility – What the consumer can do • The concept of a budget constraint • Together, these components allow us to discuss how a consumer will choose and then move to analyzing demand and welfare USC Marshall Consumer preferences • People have different tastes. Economists refer to these tastes as preferences and take them as given USC Marshall Consumer preferences • People have different tastes. Economists refer to these tastes as preferences and take them as given • Preferences describe how consumers value different alternatives and are assumed to follow two principles: – The ranking principle: A consumer can rank, in order of preference (potentially with ties), all otentially available alternatives potentially available alternatives – The choice principle: Among the available alternatives, the consumer selects the one that USC Marshall (s)he ranks the highest Consumer preferences • In short, given a set of options, a consumer can evaluate the alternatives and chooses the best option for him or her USC Marshall Consumer preferences • In short, given a set of options, a consumer can evaluate the alternatives and chooses the best option for him or her • By observing consumer choice we can learn about consumer preferences and – Predict how s(he) will respond if presented with new alternatives – Evaluate how the welfare of a consumer is impacted by changes in market conditions USC Marshall Consumer preferences • Mapping preferences: number of minutes per month 1000 500 USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D 500 A C USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D referred to A 500 A C preferred to A not preferred to A USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D referred to A 500 A C preferred to A not preferred to A USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D referred to A 500 A C preferred to A not preferred to A USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D referred to A 500 A C preferred to A not preferred to A USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences: number of minutes per month 1000 B D referred to A 500 A C preferred to A not preferred to A USC Marshall number of text messages per month 200 400 Consumer preferences • Mapping preferences:...
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This note was uploaded on 03/09/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

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Lecture5 consumer - opic 4 Consumer Choice(1 Topic 4 Consumer Choice(1 Preferences and constraints on choice USC Marshall Consumer choice • To

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