lecture5 - consumer choice - handout

lecture5 - consumer choice - handout - 1/25/2009 Topic 4:...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
1/25/2009 1 Topic 4: Consumer Choice (1) USC Marshal Preferences and constraints on choice 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 USC Marshal – 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 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 USC Marshal two principles: The ranking principle: A consumer can rank, in order of preference (potentially with ties), all potentially available alternatives The choice principle: Among the available alternatives, the consumer selects the one that (s)he ranks the highest
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1/25/2009 2 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 USC Marshal 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 Consumer preferences Mapping preferences: number of minutes per month 1000 B D USC Marshal number of text messages per month 500 200 400 A C preferred to A not preferred to A indifference curve Consumer preferences An indifference curve: – All combinations of goods (consumption bundles) that a consumer is indifferent between A consumption bundle : a particular combination of “things” USC Marshal – 2 loafs of bread, 4 movie tickets, 1 pound of pasta • With respect to any consumption bundle, we can rank the rest of the possible bundles as “better than,” “worse than” or “indifferent to”
Background image of page 2
1/25/2009 3 Consumer preferences Basic properties of indifference curves: – Indifference curves are “thin” • A little more of something is strictly better – Indifference curves of a single individual don’t cross USC Marshal – Indifference curves don’t slope upwards
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/07/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

Page1 / 11

lecture5 - consumer choice - handout - 1/25/2009 Topic 4:...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online