Chapter_10_-_Consumer - 1 Chapter 10 The Rational Consumer...

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1 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; What income and substitute effects are? Utility: Getting Satisfaction All that is required to analyze consumer behavior is to suppose that each individual is trying to maximize some personal measure of the satisfaction gained from consumption of goods and services. This measure is known as the consumer’s _________. Utility and consumption Some useful definitions The set of all goods and services an individual consumes is known as the __________________. The relationship between an individual’s consumption bundle and the total amount of utility that it generates for that individual is known as the ________________. Chapter 10 The Rational Consumer Utility: Getting Satisfaction Utility and Consumption Diminishing Marginal Utility Budgets and Optimal Consumption Budget Constraints and Budget lines Optimal Consumption Choice Spending the Marginal Dinar Marginal Utility per Dinar Optimal Consumption From Utility to the Demand Curve The Substitution Effect The Income Effect
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2 How to measure utility? The concept of _______________ is a way of representing the fact that people must make choices and they make those choices in a more or less rational way. For the sake of simplicity, we use a fictional unit called “utils” in order to measure utility. The more utils the consumption of the good gives you, the more you are satisfied. An example
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This note was uploaded on 12/12/2011 for the course ECON 11 taught by Professor Mah during the Spring '11 term at American University of Kuwait.

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Chapter_10_-_Consumer - 1 Chapter 10 The Rational Consumer...

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