Bài giảng MicroEconomics - Chapter 07 Consumer Behavior

Consumer Behavior Chapter 7Chapter ObjectivesTotal utility and marginal utilityLaw of diminishing marginal utilityMarginal utility-to-price ratios Deriving the demand curve Income and substitution effects Appendix: the indifference curve model7-2UtilityDiminishing marginal utility (again)Satisfaction obtained from consumptionThree characteristicsDiffers from usefulnessSubjectiveDifficult to quantify7-3UtilityTotal utilityTotal satisfaction from a specific quantityMarginal utilityExtra satisfaction from an additional unitLaw of diminishing marginal utility Explains downward sloping demand7-4Utility Graphically01020301086420-212345671234567Total Utility (Utils)Marginal Utility (Utils)(1)TacosConsumedPer Meal(2)TotalUtility,Utils(3)MarginalUtility,Utils01234567010182428303028]]]]]]]1086420-2TUMUTotal UtilityMarginal UtilityUnits Consumed Per MealUnits Consumed Per Meal7-5Theory of Consumer BehaviorKey dimensions of the consumer problemRational behaviorPreferences Budget constraintPrices7-6Theory of Consumer BehaviorFind utility maximizing combination of goodsUtility maximizing ruleAllocate incomeLast dollar spent on each good yields same marginal utilityMarginal utility per dollar7-7Numerical ExampleCombinations of apples and oranges obtainable with an income of $10(1)Unit ofProduct(a)MarginalUtility,Utils(a)MarginalUtility,Utils(b)MarginalUtilityPer Dollar(MU/Price)(b)MarginalUtilityPer Dollar(MU/Price)(2)Apple (product A)Price = $1(3)Orange (product B)Price = $2FirstSecondThirdFourthFifthSixthSeventh1087654324201816126410876543121098632Compare marginal utilitiesThen compare per dollar - MU/PriceChoose the highestCheck budget - proceed to next item 7-8Numerical ExampleCombinations of apples and oranges obtainable with an income of $10(1)Unit ofProduct(a)MarginalUtility,Utils(a)MarginalUtility,Utils(b)MarginalUtilityPer Dollar(MU/Price)(b)MarginalUtilityPer Dollar(MU/Price)(2)Apple (product A)Price = $1(3)Orange (product B)Price = $2FirstSecondThirdFourthFifthSixthSeventh1087654324201816126410876543121098632Again, compare per dollar - MU/PriceChoose the highestBuy one of each – budget has $5 leftProceed to next item 7-9Numerical ExampleCombinations of apples and oranges obtainable with an income of $10(1)Unit ofProduct(a)MarginalUtility,Utils(a)MarginalUtility,Utils(b)MarginalUtilityPer Dollar(MU/Price)(b)MarginalUtilityPer Dollar(MU/Price)(2)Apple (product A)Price = $1(3)Orange (product B)Price = $2FirstSecondThirdFourthFifthSixthSeventh1087654324201816126410876543121098632Again, compare per dollar - MU/PriceBuy one more orange – budget has $3 leftProceed to next item 7-10Numerical ExampleCombinations of apples and oranges obtainable with an income of $10(1)Unit ofProduct(a)MarginalUtility,Utils(a)MarginalUtility,Utils(b)MarginalUtilityPer Dollar(MU/Price)(b)MarginalUtilityPer Dollar(MU/Price)(2)Apple (product A)Price = $1(3)Orange (product B)Price = $2FirstSecondThirdFourthFifthSixthSeventh1087654324201816126410876543121098632Again, compare per dollar - MU/PriceBuy one of each – budget exhausted7-11Numerical ExampleCombinations of apples and oranges obtainable with an income of $10(1)Unit ofProduct(a)MarginalUtility,Utils(a)MarginalUtility,Utils(b)MarginalUtilityPer Dollar(MU/Price)(b)MarginalUtilityPer Dollar(MU/Price)(2)Apple (product A)Price = $1(3)Orange (product B)Price = $2FirstSecondThirdFourthFifthSixthSeventh1087654324201816126410876543121098632Final result – at these prices, purchase 2 apples and 4 oranges 7-12Algebraic GeneralizationMU of product Aprice of AMU of product Bprice of B=8 Utils$116 Utils$2=Optimum Achieved – Money income is allocated so that the last dollar spent on each product yields the same extra or marginal utility7-13Price of Product B01246Quantity Demanded of BDeriving the Demand Curve$2146Price Per Unit of BQuantityDemandedDBIncome EffectsSubstitution Effects7-14Applications and ExtensionsNew products increase utilityiPodsThe diamond-water paradoxThe value of timeMedical care purchasesCash and noncash gifts7-15Behavioral EconomicsHuman instinct for varietyConsume more when there is more varietyM&MsTime inconsistencyFinal examsRetirement savings7-16Key TermsLaw of diminishing marginal utilityUtilityTotal utilityMarginal utilityRational behaviorBudget constraintUtility maximizing ruleIncome effectSubstitution effect7-17Next Chapter PreviewThe Costs of Production7-18The Budget LineIncome changesPrice changes24681012Quantity of A681012420Quantity of BUnits of A(Price = $1.50)Units of B(Price = $1)TotalExpenditure86420036912$1212121212(Attainable)(Unattainable)Income = $12PA = $1.50Income = $12PB = $17-19Indifference CurvesWhat is preferredDownsloping and convexMarginal rate of substitution 24681012Quantity of A681012420Quantity of BCombinationUnits of AUnits of Bjklm126432468jklmI7-20Indifference Curve AnalysisThe indifference mapEquilibrium position at tangency24681012Quantity of A681012420Quantity of BI1I2I3I4XWPreferred – But RequiresMore IncomeMRS = PBPA7-21Demand Curve DerivedPrice of B$1.501.00.5024681012Quantity of BX24681012Quantity of A681012420Quantity of BI2I3DBAt $1 price for B, 6 units of B are purchasedRecord the resultsAs price of B increases to $1.50, only 3 units of B are boughtRecord the resultsConnect the points tocreate the demand curve for B7-22Appendix Key TermsBudget LineIndifference curveMarginal rate of substitution (MRS)Indifference mapEquilibrium position7-23Next Chapter PreviewThe Costs of Production7-24