Principles of Microeconomics
(Microeconomics, by:
Karlan
/
Morduch
)
Chapter 07:
Consumer Behavior
Appendix E: Indifference curves
Hossein A. Abbasi
University of Maryland, College Park
What will you learn in this chapter?
Consumer theory: maximizing utility subject to
budget constraints.
How revealed preferences relate to utility.
How budget constraints affect utility maximization.
How income affects consumption choices.
How prices affect consumption choices and how to
distinguish between income and substitution effects.
How utility is influenced by outside perceptions, and
how people get utility from altruism and reciprocity.
7-3
Utility
is a measure of the amount of
satisfaction a person derives from
something.
◦
Incorporates emotions and sensations.
◦
Universal measure (or yardstick) that
allows
individuals to compare choices
.
◦
Not typically comparable across individuals.
Rational individuals
maximize utility
when
making choices.
Ut
il
ity basics
