budget - Click to edit Master subtitle style Dr Fidel...

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Unformatted text preview: Click to edit Master subtitle style 6/8/11 Dr. Fidel Gonzalez TOPIC 2: CONSUMER CHOICE THEORY: INTERMEDIATE MICROECONOMICS Summer 2010 Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University 6/8/11 The semester is divided into three big sections: 1) Consumer Choice Theory 2) Firm Theory 3) Other complementary topics. For the next weeks we will concentrate on the first topic which is Consumer Choice Theory Consumer Choice Theory In this section we want to know why consumer behave the way they do. This is going to help us predict how consumers would respond to changes in income, prices, taxes and so on. It would also help us to find how much we can charge consumer for certain goods and analyze the impact of government regulations on the welfare of consumers. So, the final objective of Consumer Choice Theory is to understand consumer behavior. In your principles of microeconomics class you learned demand and other concepts. In this semester will explain why the stuff you learned in principles of microeconomics is the way it is. That is, we are going to go deeper in our knowledge. We are going to ask why consumers do the things they do. That is, we are going to figure out why when people go to the store 6/8/11 This means that we are going to try to get into the head of the consumer to see why she chooses the things she chooses. Our starting point is to figure out what is that the consumer does. We are going to consumer that there are no stupid consumers, in economics terms this means that consumers are rational. (This is not to say that there are not some pretty stupid consumers but we are just not going to consider them). The main assumption about the consumer’s behavior is the following: Main Assumption : The consumer is going to buy the best combinations of goods that she can afford. The assumption above is by far the most important of all the assumptions, this is the cornerstone of consumer theory. There are two important words in the main assumption: BEST and AFFORD. 6/8/11 BEST : this means that the consumer will choose the combination of goods that given her preferences give her the highest level of satisfaction or happiness (that why it is best and not just good or kind of fine). Therefore, this implies that if I really want to know what is best for the consumer I need to understand her preferences. Once, I understand the consumer’s preferences I will know what she considers the best choice. AFFORD : this means that the consumer will choose the combination of goods that she can afford given the prices of the good and her income. That means that if the consumer chooses something she can pay for it and it is not only wishful thinking. In other words, we are going to consider only realistic choices....
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This note was uploaded on 06/08/2011 for the course ECON 3357 taught by Professor Fidel during the Summer '11 term at Sam Houston State University.

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budget - Click to edit Master subtitle style Dr Fidel...

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