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lecture5 - consumer choice - handout

lecture5 - consumer choice - handout - Topic 4 Consumer...

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1/25/2009 1 Topic 4: Consumer Choice (1) USC Marshall 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 Marshall – 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 i i l USC Marshall 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
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