Chapter 10 - KWells_CH10 pg 230-252 4:18 PM Page 230...

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>> O ENTICE CUSTOMERS , RESTAURANTS sometimes offer “all-you-can-eat” specials: all-you-can-eat salad bars, all-you-can-eat breakfast buffets, and all- you-can-eat fried-clam dinners. But how can a restaurant owner who offers such a special be sure she won’t be eaten out of business? If she charges $12.99 for an all-you-can-eat clam dinner, what prevents her average customer from wolf- ing down $30 worth of clams? The answer is that even though every once in a while you see someone really take advantage of the offer—heaping a plate high with 30 or 40 fried clams—it’s a rare occur- rence. And even those of us who like fried clams shudder a bit at the sight. Five or even 10 fried clams can be a treat, but 30 clams is ridiculous. Anyone who pays for an all- you-can-eat meal wants to make the most of it, but a sen- sible person knows when one more clam would be one clam too many. Notice what we just did in that last sentence. We said that customers in a The Rational Consumer A CLAM TOO FAR 230 T What you will learn in this chapter: How consumers choose to spend their income on goods and services Why consumers make choices by maximizing utility, a measure of satisfaction from consumption Why the principle of diminishing marginal utility applies to the consumption of most goods and services How to use marginal analysis to find the optimal consumption bundle How choices by individual con- sumers give rise to the market demand curve What income and substitution effects are restaurant want to “make the most” of their meal; that sounds as if they are trying to maximize something. And we also said that they will stop when consuming one more clam would be a mistake; that sounds as if they are making a marginal decision. When we analyze the behavior of pro- ducers , it makes sense to assume that they maximize profits. But what do consumers maximize? Isn’t it all a matter of taste? The answer is yes, it is a matter of taste— and economists can’t say much about where tastes come from. But economists can say a lot about how a rational individ- ual goes about satisfying his or her tastes. And that is in fact the way that economists think about con- sumer choice. They work with a model of a rational consumer a consumer who knows what he or she wants and makes the most of the available opportunities. In this chapter we will show how to analyze the deci- sions of a rational consumer and how this analysis can be used to derive the market demand curve. When is more of a good thing too much? Tom Steward/Corbis chapter 10 KWells_CH10 pg 230-252 9/3/04 4:18 PM Page 230
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Utility: Getting Satisfaction When analyzing consumer behavior, we’re talking about people trying to get what they want—that is, about subjective feelings. Yet there is no simple way to measure subjective feelings. How much satisfaction do I get from my third fried clam? Is it less or more than yours? Does it even make sense to ask the question?
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Chapter 10 - KWells_CH10 pg 230-252 4:18 PM Page 230...

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