Chapter 6 Household Behavior and Consumer Choice

Chapter 6 Household Behavior and Consumer Choice - Chapter...

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How much of each product to demand How much labor to supply How much to spend and save Households must make 3 basic decisions: Budget constraint: the limits imposed on household choices by income, wealth, and product prices Choice set OR opportunity set: the set of options that is defined and limited by a budget constraint Separates the combinations of goods and services that are available, given limited income, from those that are not The available options make up the opportunity set Real income: the set of opportunities to purchase real goods and services available to a household as determined by prices and money income (Px) (X) +(Py)(Y)= I, where Px is the price of X, X I the quantity of X consumed, same for Py and Y respectively, and I is the household income BUDGET CONSTRAINT: Utility: the satisfaction a product yields Marginal utility: the additional satisfaction gained by the consumption or use of one more unit of a good or service
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