Ch06 - CHAPTER 6 CONSUMER CHOICE 1 2 3 4 5 6 Chapter...

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CHAPTER 6 CONSUMER CHOICE   1. Chapter Summary 2. Chapter Objectives 3. Chapter Outline Teaching Tips/Topics for Class Discussion 4. Extended Examples Extended Example 1:   Is More Always Better? Extended Example 2:   Time is Money 5. Problems And Discussion Questions 6. Model Answers to Questions:  Chapter Opening Questions Test Your Understanding Using the Tools 7. Economics Applied - Using What You’ve Learned 1. Chapter Summary Chapter 6 develops the process of consumer choice based on the concept of utility. Consumers maximize utility when the marginal utilities per dollar spent on the last unit of every good purchased are equal. This satisfies the marginal principle, because this means that, for every good, the marginal benefit of consuming the last unit is exactly equal to the marginal cost. By considering consumer choice at various prices, the individual demand curve can be found. 2. Chapter Objectives 1. If you want to determine whether a consumer is doing the best she can, what single question can you ask? 2. Does inflation make the typical consumer better off, worse off or just as well off? 3. In an attempt to curb teen drinking, New Zealand imposed a special tax on the favorite alcoholic beverages of teens. How did they respond? 3. Chapter Outline I. Consumer Constraints and Preferences A. Consumer Constraints: The Budget Line 1. The budget line shows all combinations that could spend all of the consumer’s 61
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62 Chapter 6 income. 2. The budget set is all combinations of goods that the buyer can afford, given income and prices 3. The market trade-off equals the price ratio ; the ratio of the price of one good to the price of a second good. Teaching Tip: Tell the class if you won the lottery, you would give each one of them 20 dollars (big spender that you are). Ask them to write down what they would buy and the price of the items (They must buy at least two different items.) They have created their own budget sets. Collect their lists. Use several of the lists to draw budget lines. Again the budget lines represent the student, choices. (Have them save these papers as you can them again in this chapter) Use this data to illustrate opportunity costs B. Consumer Preferences: Indifference Curves Teaching Tip: Most students are visual learners. This is one concept that would be impossible to teach effectively without plenty of visuals. 1. The consumer’s preferences can be represented with indifference curves . An indifference curve connects all combinations of goods from which the consumer receives the same amount of utility or satisfaction. a. Superior combinations: all the combinations above the indifference curve generate higher utility than combinations on the curve. b. Inferior combinations: all the combinations below the indifference curve
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Ch06 - CHAPTER 6 CONSUMER CHOICE 1 2 3 4 5 6 Chapter...

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