Chapter_4_Consumer_Choice

Chapter_4_Consumer_Choice - Chapter 4 Consumer Choice...

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Chapter 4 Consumer Choice Individual decision making involves 3 steps: (1) Tastes or preferences – what does the individual want to do? (2) Budget constraint What can the individual do? (3) Maximize utility (satisfaction) subject to the budget constraint – decision
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1. Preferences (1)3 key assumptions Completeness . Given two goods e.g., movies and football games, you must be able to rank them. One and only one of the following relationships is true: (i) Prefer movies to football games. (ii) Prefer football games to movies. (iii) Be indifferent between movies and football games. Transitivity . Given 3 goods e.g., movies, football games, and concerts If you prefer football games to movies, and prefer movies to concerts, then you must prefer football games to concerts.
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More is better . Note that this assumption is made for simplicity. Question: What are the things we would prefer to have less? (2)Indifference curves
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Chapter_4_Consumer_Choice - Chapter 4 Consumer Choice...

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