ch03 text - c03.qxd 9:01 PM Page 69 CHAPTER CONSUMER...

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Why Do You Like What You Like? If you are thinking about buying a car, your choices can be overwhelming: Should you buy or lease? New car or used? A sport utility vehicle, a sedan, a sports car, or a minivan? Should you get a sun- roof or four-wheel drive? How much extra would you pay for a vehicle that will have a high resale value in the future? What are the expected operating expenses for each model—insurance, repairs, gasoline, and so on? Finally, what opportunities will you forgo if you buy a car? How else could you spend your money, either today or in the future? Making decisions about a product with many options is not easy. Before buying a car, for exam- ple, you might draw on the experiences of friends and family, read advertisements, visit dealers, and test-drive vehicles. You might also research different models and financing options on the Web, read Consumer Reports , price insurance rates for favorite models, or even visit chat rooms frequented by car buffs. As a consumer, you make choices every day of your life. Besides choosing among automobiles, you must decide what kind of housing to rent or purchase, what food and clothing to buy, how much education to acquire, and so on. Consumer choice provides an excellent example of constrained optimization, one of the key tools discussed in Chapter 1. People have unlimited desires, but limited resources. The theory of consumer choice focuses on how consumers with limited resources choose goods and services. 3.1 REPRESENTATIONS OF PREFERENCES 3.2 UTILITY FUNCTIONS APPLICATION 3.1 Influencing Your Preferences APPLICATION 3.2 How People Buy Cars: The Importance of Attributes APPLICATION 3.3 Taste Tests APPLICATION 3.4 Hula Hoops and Pet Rocks APPLICATION 3.5 Does More Make You Happier? Reference-Dependent Preferences CONSUMER PREFERENCES AND THE CONCEPT OF UTILITY 3 CHAPTER c03.qxd 7/5/07 9:01 PM Page 69
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In the next three chapters, we will learn about consumer choice. In this chapter we will examine consumer preferences. We study consumer preferences to understand how a consumer compares (or ranks ) the desirability of different sets of goods. For this discussion, we ignore the costs of purchasing the goods. Thus, consumer preferences indicate whether the consumer likes one particular set of goods better than another, assuming that all goods can be “purchased” at no cost. Of course, in the real world it does cost the consumer something to purchase goods and a con- sumer has limited income. This reality leads us to the second part of our discussion of consumer choice in Chapter 4. When goods are costly, a consumer’s income limits the sets of goods she can purchase. In Chapter 4 we will show how to describe the set of goods that is affordable given a consumer’s income and the prices of goods. Then we will use consumer preferences to answer the following question: Which goods among those that are affordable will the consumer choose?
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ch03 text - c03.qxd 9:01 PM Page 69 CHAPTER CONSUMER...

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