Econ 281 Chapter3a - Section 2 Consumer Theory Consumer...

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1 Section 2 - Consumer Theory Consumer theory attempts to explain why consumers choose one good or bundle of goods over another good or bundle of goods.
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2 Section 2 - Consumer Theory In consumer theory we will discuss: Consumer Utility (Chapter 3) Utility and Constraints (Chapter 4) Utility and the demand curve (Chapter 5)
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3 Chapter 3 – Consumer Preferences and the Concept of Utility Every day, people make choices about what they prefer: Buy a red car with a sunroof or a green truck with 4 wheel drive Buy Edo and a chocolate milk or MacDonalds and a Diet Coke Buy a computer with a 21” LCD screen and windows or a computer with a 18” screen with an apple on it
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4 Chapter 3 – Consumer Preferences and the Concept of Utility In this chapter we will study: Preferences, ranking and assumptions Utility Functions Indifference Curves Marginal Rates of Substitution Special Utility Functions
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5 Preferences Basket (bundle) – any combination of goods and services 3 hot dogs, 2 pop and 1 ice cream Haircut, manicure and 20 min massage 2 punches in the gut, 1 kick in the groin Consumer preferences – any ranking of two baskets I prefer 2 hot dogs and a coke to a hot dog, coke and ice cream
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