Professional Documents
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3
Consumer
Behavior
Prepared by:
Fernando & Yvonn
Quijano
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld, 7e.
CHAPTER 3 OUTLINE
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Consumer Behavior
Consumer preferences
2.
Budget constraints
3.
Consumer choices
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3.1
CONSUMER PREFERENCES
Market Baskets
market basket (or bundle)
of one or more goods.
Market Basket
Units of Food
Units of Clothing
20
30
10
50
40
20
30
40
10
20
10
40
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3.1
CONSUMER PREFERENCES
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3.1
CONSUMER PREFERENCES
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3.1
CONSUMER PREFERENCES
Indifference Curves
Figure 3.1
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3.1
CONSUMER PREFERENCES
Indifference Curves
indifference curve Curve representing all combinations of market
baskets that provide a consumer with the same level of satisfaction.
Figure 3.2
An Indifference Curve
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3.1
CONSUMER PREFERENCES
Indifference Maps
indifference map Graph containing a set of indifference curves
showing the market baskets among which a consumer is indifferent.
Figure 3.3
An Indifference Map
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3.1
CONSUMER PREFERENCES
Indifference Maps
Figure 3.4
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3.1
CONSUMER PREFERENCES
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3.1
CONSUMER PREFERENCES
perfect substitutes
perfect complements
Bads
bad
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3.1
CONSUMER PREFERENCES
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3.1
CONSUMER PREFERENCES
Figure 3.7
Preferences for Automobile Attributes
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3.1
CONSUMER PREFERENCES
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3.1
CONSUMER PREFERENCES
Figure 3.9
Income and Happiness
A cross-country
comparison shows that
individuals living in
countries with higher
GDP per capita are on
average happier than
those living in countries
with lower per-capita
GDP.
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3.2
BUDGET CONSTRAINTS
budget constraints
PF F PC C I
(3.1)
Food (F)
0
Clothing (C)
40
Total Spending
$80
20
30
$80
40
20
$80
60
10
$80
80
$80
The table shows market baskets associated with the budget line
F + 2C = $80
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3.2
BUDGET CONSTRAINTS
C ( I / PC ) ( PF / PC ) F
(3.2)
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3.2
BUDGET CONSTRAINTS
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3.2
BUDGET CONSTRAINTS
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3.3
CONSUMER CHOICE
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3.3
CONSUMER CHOICE
MRS PF / PC
(3.3)
marginal benefit
marginal cost
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3.3
CONSUMER CHOICE
Figure 3.14
The consumers in (a) are willing to trade off a considerable amount of interior space
for some additional acceleration. Given a budget constraint, they will choose a car
that emphasizes acceleration. The opposite is true for consumers in (b).
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3.3
CONSUMER CHOICE
Corner Solutions
corner solution
Figure 3.15
A Corner Solution
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3.3
CONSUMER CHOICE
Figure 3.16
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3.4
REVEALED PREFERENCE
Revealed Preference:
Two Budget Lines
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3.4
REVEALED PREFERENCE
Figure 3.18
Revealed Preference:
Four Budget Lines
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3.4
REVEALED PREFERENCE
Figure 3.19
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3.5
(3.5)
(3.6)
(3.7)
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3.5
Figure 3.20
A comparison of mean levels of satisfaction with life across income classes in the
United States shows that happiness increases with income, but at a diminishing
rate.
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3.5
Figure 3.21
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3.5
Figure 3.22
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3.6
COST-OF-LIVING INDEXES
cost-of-living index
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3.6
COST-OF-LIVING INDEXES
Figure 3.23
Cost-of-Living Indexes
1995 (Sarah)
2005 (Rachel)
$20/book
$100/book
15
$2.00/lb.
$2.20/lb.
Pounds of food
100
300
Expenditure
$500
$1260
Price of books
Number of books
Price of food
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3.6
COST-OF-LIVING INDEXES
Figure 3.23
Cost-of-Living Indexes
1995 (Sarah)
2005 (Rachel)
$20/book
$100/book
15
$2.00/lb.
$2.20/lb.
Pounds of food
100
300
Expenditure
$500
$1260
Price of books
Number of books
Price of food
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3.6
COST-OF-LIVING INDEXES
Laspeyres Index
Laspeyres price index Amount of money at current year
prices that an individual requires to purchase a bundle of goods
and services chosen in a base year divided by the cost of
purchasing the same bundle at base-year prices.
Paasche Index
Paasche index Amount of money at current-year prices that
an individual requires to purchase a current bundle of goods and
services divided by the cost of purchasing the same bundle in a
base year.
Comparing the Laspeyres and Paasche Indexes Just as the
Laspeyres index will overstate the ideal cost of living, the
Paasche will understate it because it assumes that the individual
will buy the current-year bundle in the base period.
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3.6
COST-OF-LIVING INDEXES
fixed-weight index
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