ManEconCh03 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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MANAGERIAL ECONOMICS: THEORY, APPLICATIONS, AND CASES W. Bruce Allen | Keith Weigelt | Neil Doherty | Edwin Mansfield CHAPTER  3 Consumer Behavior and  Rational Choice
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OBJECTIVES Explain the determination of individual  consumer demand Internal classification scheme: consumer  preference orderings Need to allocate limited budgets: consumer  constraints
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OBJECTIVES Explain the determination of individual consumer  demand (Continued) Rational behavior in economic terms: consumers  maximize their well-being given their budget constraint. Effect of risk Effect of asymmetric information Define a state's budget constraint and its priorities and  requires determination of the optimal choice
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OBJECTIVES Show how market demand is a summation  of consumer demand Explain how managers can exert control  over demand by controlling its determinants Pricing Advertising Product quality
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INDIFFERENCE CURVES Ms. Popovich: a running example She lives in South Pasadena, California. We will get to  know about her preferences and her responses to  market incentives. She has a limited budget that she must allocate  between food and clothing. If her available budget increases, she can buy more of both  goods. If the price of one good increases, she can buy less of that  good.
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INDIFFERENCE CURVES Ms. Popovich: a running example Her utility maximizing combination of food and  clothing is found where her indifference curve is  tangent to her budget constraint. If she receives a coupon, how will her budget  constraint change? If she receives a quantity discount, how will her  budget constraint change?
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INDIFFERENCE CURVES Ms. Popovich: a running example (Continued) Her utility maximizing combination of food and clothing  is found where her indifference curve is tangent to her  budget constraint. Why is she generally better off with a cash gift than a gift or gift  card of equal value? How does she balance work and leisure? If the price of a good changes, how will her consumption bundle  change? How is her demand curve derived?
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INDIFFERENCE CURVES Indifference curve: Contains points  representing market bundles among which  the consumer is indifferent Utility refers to the happiness or satisfaction that  a person derives from consumption of a good or  service. If two combinations of two goods yield the same  level of utility, and are hence equally desirable,  then they are on the same indifference curve.
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Characteristics of indifference curves A consumer has many different indifference curves. More is preferred to less; hence, indifference curves farther 
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This note was uploaded on 03/30/2011 for the course ECON 3020 taught by Professor Lucas during the Spring '10 term at Hawaii Pacific.

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ManEconCh03 - MANAGERIAL ECONOMICS: THEORY, APPLICATIONS,...

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