301lec4 - Lecture 4 Econ 301 Professor S. Severinov...

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Unformatted text preview: Lecture 4 Econ 301 Professor S. Severinov Consumer Behavior Consumer Choice Given preferences and budget constraints, how do consumers choose what to buy? They will choose a combination of goods that will maximize their utility, given the budget. The chosen optimal bundle is the most preferred among all bundles in the consumers budget set Consumer Choice Graphically, consider different indifference curves of a consumer choosing between clothing and food Consumer wants to choose highest utility within the budget. Remember that U 3 > U 2 > U 1 Consumer Choice U 3 D U 2 C Food (units per week) 40 80 20 Clothing (units per week) 20 30 40 U 1 A B A, B, C on budget line D highest utility but not affordable C highest affordable utility Consumer chooses C Consumer Choice Consumer will choose highest indifference curve on budget line The optimal point, point C, is where the indifference curve is just tangent to the budget line Tangency means that the slope of the budget line equals the slope of the indifference curve at this point Consumer Choice...
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This note was uploaded on 01/28/2011 for the course ECON 301 taught by Professor Chapple during the Spring '08 term at The University of British Columbia.

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301lec4 - Lecture 4 Econ 301 Professor S. Severinov...

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