Lecture B (WK3)

Lecture B (WK3) - Lecture B (WK3) Lecture B Welcome Back!...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture B (WK3) Lecture B Welcome Back! Chapter 6 – Household Behavior and Consumer Choice Why do consumers purchase a particular bundle of goods and services? By examining these decisions, we will begin to understand consumer behavior and the law of demand in action. Before we proceed with our investigation into household choice , we need to make a few basic assumptions : Perfect Competition : an industry structure in which there are many firms, each small relative to the industry and producing virtually identical products, and in which no firm is large enough to have any control over prices. Homogenous products : Undifferentiated outputs; products or services that are identical to or indistinguishable from one another. Perfect knowledge : Households possess a knowledge of the qualities and prices of everything available in the market and that forms have all available information concerning wage rates, capital costs, and output prices. With these assumptions in mind we understand that every household must make three basic decisions : How much of each product to demand How much labor to supply how much to spend and how much to save. But the household is restrained in making these choices by its budget constraint : the limits imposed on household choices by income, wealth, and product price. Within these restrictions the household chooses how to answer these three questions to maximize their utility. Utility
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

Lecture B (WK3) - Lecture B (WK3) Lecture B Welcome Back!...

This preview shows document pages 1 - 2. Sign up to view the full document.

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