Chapter3(1) - Consumer Behavior Chapter 3 Chapter Outline...

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Consumer Behavior Chapter 3
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Chapter Outline Preferences Budget Constraints Consumer Choice
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Consumer Behavior theory of consumer behavior Description of how consumers allocate incomes among different goods and services to maximize their well-being. Consumer behavior is best understood in 3 steps: Consumer preferences Budget constraints Consumer choices
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market basket (or bundle ) List with specific quantities of one or more goods. Alternative Market Baskets A 20 30 B 10 50 D 40 20 E 30 40 G 10 20 H 10 40 Market Basket Units of Food Units of Clothing To explain the theory of consumer behavior, we will ask whether consumers prefer one market basket to another. Consumer Preferences
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Basic Properties of Preferences These properties characterize “rational” choice Completenes s Trans itivity Covexivity Continuity More-Is -Better: other things equal, more of a good is preferred to less
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Basic Properties of Preferences Completeness if A and B are any two situations, an individual can always specify exactly one of these possibilities: A is preferred to B B is preferred to A A and B are equally attractive
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Basic Properties of Preferences Transitivity if A is preferred to B, and B is preferred to C, then A is preferred to C assumes that the individual’s choices are internally consistent Convexivity mixtures of goods are preferable to extremes. Continuity if A is preferred to B, then situations suitably “close to” A must also be preferred to B
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Basic Properties of Preferences More is better than les s : Goods are assumed to be desirable—i.e., to be good . Consumers are never satisfied or satiated; more is always better, even if just a little better . Of course, some goods, such as air pollution,
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This note was uploaded on 02/06/2012 for the course ECON 293 taught by Professor Akbulut during the Spring '11 term at South Carolina.

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Chapter3(1) - Consumer Behavior Chapter 3 Chapter Outline...

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