lecture 06 consumer theory
合集下载
高级微观经济学(上海财经大学 陶佶)note06
205 年秋季高等微观经济学 I
消费者理论专题
Lecture Note 6 – Topics in Consumer Theory
1. The Money Metric Utility Functions The money metric utility functions are useful in integrability theory and welfare economics. The money metric direct utility function gives the minimum expenditure at prices p necessary to purchase a bundle at least as good as x. Let the consumption bundle x be given. Question: how much money would a consumer need at the price vector p to be as well off as he could be by consuming the bundle x ? Graphically, it asks how much money consumer would need to reach the indifference cure passing through x .
A Numerical Example In previous numerical example, the direct utility is a CES function,
ρ u ( x1 , x2 ) = ( x1ρ + x2 )
1/ ρ
, where 0 ≠ ρ < 1.
消费者理论专题
Lecture Note 6 – Topics in Consumer Theory
1. The Money Metric Utility Functions The money metric utility functions are useful in integrability theory and welfare economics. The money metric direct utility function gives the minimum expenditure at prices p necessary to purchase a bundle at least as good as x. Let the consumption bundle x be given. Question: how much money would a consumer need at the price vector p to be as well off as he could be by consuming the bundle x ? Graphically, it asks how much money consumer would need to reach the indifference cure passing through x .
A Numerical Example In previous numerical example, the direct utility is a CES function,
ρ u ( x1 , x2 ) = ( x1ρ + x2 )
1/ ρ
, where 0 ≠ ρ < 1.
第二十一章 消费者选择理论PPT教学课件
the limit on the consumption bundles that a consumer can afford
2020/12/10
back 5
Marginal rate of substitution
The rate at which a consumer is willing to trade one good for another
2020/12/10
back 8
Normal good
A good for which an increase in income raises the quantity demanded
2020/12/10
back 9
Inferior good
A good for which an increase reduces the quantity demanded
back 11
Substitution effect
The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
Chapter 21 the theory of consumer choice
In this chapter you will
see how a budget constraint represents the choice a consumer can afford
learn how indifference curves can be used to represent a consumer’s preference
2020/12/10
back 5
Marginal rate of substitution
The rate at which a consumer is willing to trade one good for another
2020/12/10
back 8
Normal good
A good for which an increase in income raises the quantity demanded
2020/12/10
back 9
Inferior good
A good for which an increase reduces the quantity demanded
back 11
Substitution effect
The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
Chapter 21 the theory of consumer choice
In this chapter you will
see how a budget constraint represents the choice a consumer can afford
learn how indifference curves can be used to represent a consumer’s preference
消费者行为相关理论
消费者行为相关理论消费者行为是指个人在购买和使用商品或服务时所表现出的思考、决策和行为过程。
为了理解和解释消费者行为，研究者们提出了多种相关的理论。
本文将对其中几个重要的理论进行介绍。
1.可及性和认可理论(Theory of Accessibility and Acceptance)可及性和认可理论由心理学家Bernard Weiner提出，他认为消费者的态度和行为受到两个主要因素的影响：可及性和认可。
可及性是指个人对某个商品或服务相关信息的获取和处理能力，而认可是指消费者对这些信息的接受程度。
2.社会认同理论(Social Identity Theory)社会认同理论由社会心理学家Henri Tajfel提出，它强调人们在购买行为中将考虑自己所属的社会群体对特定产品或品牌的认同程度。
消费者希望通过购买某些商品或使用某些服务来展现自己的社会身份和归属感。
3.期望效用理论(Expected Utility Theory)期望效用理论是经济学家Von Neumann和Morgenstern提出的一个基本理论，它认为消费者在购买商品或服务时会根据自己对所得效用的期望来作出决策。
换言之，消费者会比较不同选择的各种可能结果，然后选择他们期望效用最高的选项。
4.驱动动力理论(Drive Theory)驱动动力理论由心理学家Clark Hull提出，它强调消费者的行为是由内部驱动力推动的。
消费者购买和使用某个商品或服务的原因是为了满足他们的需求和欲望，以减少内部的紧张和不满。
5.认知一致性理论(Cognitive Consistency Theory)认知一致性理论由心理学家Festinger提出，它认为消费者在购买和使用商品或服务时希望保持自己的认知一致性。
换言之，消费者会尽量选择与自己既定的信念和价值观一致的商品或服务，以避免产生认知冲突和不安。
上述理论只是消费者行为研究中的一小部分，实际上还有很多其他的理论和模型被提出和使用。
消费之谜
C = C + cY
APC = C = C + c YY
slope = APC Y
LECTURE 14 Consumption
slide 4
Early Empirical Successes:
Results from Early Studies
具有更高收入的家庭:
消费更多 MPC > 0
储蓄更多 MPC < 1
current income Y as the sum of two components: 持久收入 Y P
(平均收入，是人们预期未来可以获得的收入) 暂时收入 Y T
(对平均收入的暂时偏离)
LECTURE 14 Consumption
slide 33
Permanent Income Hypothesis
＝30万
退休金：2000×12月×15年＝36万 总计:397.2万元 (每月要有11033元收入!!!)
LECTURE 14 Consumption
slide 32
持久收入假说 PIH
归功于 Milton Friedman (1957)
PIH 将现期收入Y 看作两个部分的组成views
LECTURE 14 Consumption
slide 1
凯恩斯的猜想Keynes’s Conjectures
0 < MPC < 1
C = C + cY
平均消费倾向随着收入的上升而下降 (APC = C/Y )
收入是消费的主要决定因素。 Income is the main determinant of consumption.
1
MRS
APC = C = C + c YY
slope = APC Y
LECTURE 14 Consumption
slide 4
Early Empirical Successes:
Results from Early Studies
具有更高收入的家庭:
消费更多 MPC > 0
储蓄更多 MPC < 1
current income Y as the sum of two components: 持久收入 Y P
(平均收入，是人们预期未来可以获得的收入) 暂时收入 Y T
(对平均收入的暂时偏离)
LECTURE 14 Consumption
slide 33
Permanent Income Hypothesis
＝30万
退休金：2000×12月×15年＝36万 总计:397.2万元 (每月要有11033元收入!!!)
LECTURE 14 Consumption
slide 32
持久收入假说 PIH
归功于 Milton Friedman (1957)
PIH 将现期收入Y 看作两个部分的组成views
LECTURE 14 Consumption
slide 1
凯恩斯的猜想Keynes’s Conjectures
0 < MPC < 1
C = C + cY
平均消费倾向随着收入的上升而下降 (APC = C/Y )
收入是消费的主要决定因素。 Income is the main determinant of consumption.
1
MRS
Part II consumer theory (1)
（完备性）This assumption says that any two bundles can be compared.
（反身性）This assumption says that every consumption bundles is as good as itself.
（传递性）This assumption requires the consumer’s choice be consistent.
1.3 Utility Maximization and Optimal Choice
A rational consumer will always choose the most preferred bundle from the set of affordable alternatives. (basic hypothesis) The problem of preference maximization can be written as:
More assumptions on consumer’s preferences
Weak monotonicity（弱单调性）says that at least as much of everything is at least as good.” (Free disposal) Strong monotonicity（强单调性）says that at least as much of every good, and strictly more of some good, is strictly better. (Goods are good)
Strict preference “ ” 强偏好
lecture6
很高兴已有同学参与讨论。
也希望同学们不仅看我的讲稿， 同时也读跟贴；否则就好比在课堂上不听别人的发言一样。
作业也请大家用心做。
如果你们年轻人将来获得博士之际我们能成为同事， 那将是我的幸运。
It did happen and it could happen again!第六讲：One-Sector Model前面在讲吃蛋糕问题时我就说过那是一个最简单的 one-sector model with production function f(k)=0。
现在我们要更具体一点。
模型必然是理想化的。
这里也不例外。
我们假设这个经济体中有 N 个人，每个人都长生不老。
同时有 N 个厂家 （也可假设有 M N ≠个厂家，M N =时均衡条件会整齐些）。
每个人各方面都等同，既是消费者，也是工人（每人可工作一个单位时间）。
作为消费者，每人的效用函数为：0()t u c e dt ρ∞−∫每家工厂也都相同, 生产函数为:(,)j j j Y F K L =为方便起见，我们进一步假设生产函数为收益规模不变的。
我们将在两种情形下讨论资源分配的问题。
第一种情形：假定有一个Social Planner 。
第二种情形：假定有完全竞争的劳工，资本，及消费品市场。
我们将证明这两种情形下的资源分配是一致的， 但第一种情形更精练，更直接。
这也是为什么很多论文中虽然讨论的是完全竞争下的均衡点，但计算却是通过解决Social Planner 的问题。
情形一：Social Planner's Problem0Max ()t Nu c e dt ρ∞−∫Subject to: (,) (0) given, is constantNKNF K L Nc K N =− 这里，K 是每个厂家使用的资本，L =1是其雇用工人的数目。
将资本积累方程两边同除以N 。
同时由于N 假设为常数，目标函数中的N 也可舍去。
这样Hamiltonian 可被写成:()((,))S H u c F K L c μ=+−一价条件为：()u c F K μμρμμ′=∂=−∂TVC ：lim ()()0t t t K t e ρμ−→∞=最后从() u c μ′=解出()c c μ=带入资本积累方程而将问题归结为两条微分方程 in K and μ。
消费者行为学-中英文名词解释.
中英文名词解释第一章导言Consumer behavior: The term consumer behavior is defined as the behavior that consumers display in searching for, purchasing, using, evaluating and disposing of products and services that they expect will satisfy their needs.消费者行为学：消费者在寻求、购买、使用、评价和处理他们期望能够满足其需求的产品和服务过程中所表现出的行为。
Consumer decision making: In put, process, out put.消费者决策：输入、处理、输出Consumer research: Methodology used to study consumer behavior.消费者研究：描述用以研究消费者行为的过程与工具。
Marketing concept: A consumer-oriented marketing philosophy that focuses on the needs of the buyers and the profits through customer satisfaction.市场营销观念：关注买方的需求通过顾客满意来创造利润的顾客导向的市场营销哲学。
Organizational consumer: A business, government agency, or other institution (profit or nonprofit) that buys the goods, services, and/or equipment necessary for the organization to function.组织消费者：包括盈利和非盈利的商业单位、政府机构和各种组织机构，它们必须购买产品、设备和服务来维持组织的运转。
高级微观经济学(上海财经大学 陶佶)note02
Let x1 , x2 and x3 be any three consumption bundles in X .
Axiom 2.1 - Complete. Either x1 \ x2 or x2 \ x1 .
上海财大经济学院
2
作者：陶佶
2005 年秋季
高等微观经济学 I
Axiom 2.2 - Reflexive. For all x in X , x \ x . Axiom 2.3 - Transitive. If x1 \ x2 and x2 \ x3 , then x1 \ x3 .
Let X be a consumption set, a collection of all alternatives or complete consumption plans. The consumption set is also called as the choice set. Let xi ∈ be the number of units of ith
good, and x = ( x1, x2 , , xn ) be a vector containing different quantities of n commodities,
called as a consumption bundle or a consumption plan.
Properties of the Consumption Set, X : The minimal requirements are
Terminology 1. Let x0 be any points in the consumption set X . Relative to any such point,
lecture6
By contrast, as we established above, the sign of the income e¤ect is ambiguous,
@X1 @I
?
0;
depending on whether X1 is a normal or inferior good.
y
6.1#1
I/py This section of budget set becomes unfeasible
Normal good
S
C2
C1
Substitution effect
U1 U2
I/px2
I/px1
x
Although we only observe the movement from C1 to C2, we can conceive of this movement as having two parts: the movement from C1 to S (substitution e¤ect) and the movement from S to C2 (income e¤ect).
Question: The price of gasoline rises just about every summer, as does the gallons of gas consumed per household. Is gas a Gi¤en good?
1.4 Marshallian and Hicksian demand
2. It changes the slope of the budget set so that the consumer faces a di¤erent set of market trade-o¤s. This component is the ‘price e¤ect.’
《微观经济学microeconomics》英文版
Proof
Expenditure Minimization Problem
The problem:
Minx0 px
s.t. u(x) u
The first order condition:
u( x* ) / xl u( x* ) / xk
pl pk
u( x) u
The solution: Hicksian demand function h(p,u)
ECON501 Lecture Note 3
Consumer Theory 2 ( Textbook Chapter 3 )
Structure
Utility Maximization Problem Utility maximization Walrasian demand function Indirect utility function
of demand Preference (Chapter 3) The basic properties of preference Existence of utility function
The Budget set
Commodities The physical constraints and the consumption set
Convexity of Walrasian budget set: proof
Consumer’s Choice
The consumer’s problem: to choose a consumption bundle x from the Walrasian budget set.
Walrasian Demand Function x( p, w)
Intuition: Figure 2.F.1
Expenditure Minimization Problem
The problem:
Minx0 px
s.t. u(x) u
The first order condition:
u( x* ) / xl u( x* ) / xk
pl pk
u( x) u
The solution: Hicksian demand function h(p,u)
ECON501 Lecture Note 3
Consumer Theory 2 ( Textbook Chapter 3 )
Structure
Utility Maximization Problem Utility maximization Walrasian demand function Indirect utility function
of demand Preference (Chapter 3) The basic properties of preference Existence of utility function
The Budget set
Commodities The physical constraints and the consumption set
Convexity of Walrasian budget set: proof
Consumer’s Choice
The consumer’s problem: to choose a consumption bundle x from the Walrasian budget set.
Walrasian Demand Function x( p, w)
Intuition: Figure 2.F.1
Consumer Theory
Ad Valorem Sales Taxes
• An ad valorem sales tax levied at a rate of 5% increases all prices by 5%, from p to (1+0.05)p = 1.05p. • An ad valorem sales tax levied at a rate of t increases all prices by tp from p to (1+t)p. • A uniform sales tax is applied uniformly to all commodities. • Write the new budget constraint. • Can the government replace this with an income tax? (Sort of like old betting tax) • Subsidies are opposite of a tax (1-s)p.
Budget Constraints
• A consumption bundle containing x1 units of commodity 1, x2 units of commodity 2 and so on up to xn units of commodity n is denoted by the vector (x1, x2, … , xn). • Commodity prices are p1, p2, … , pn. • When is a consumption bundle (x1, … , xn) affordable at given prices p1, …, pn? • We usually deal with 2 commodities.
Chap1_2 Consumer Theory
例 3 Leontief 效用函数
u( x1 , x2 ,, xn ) min 1 x1 , 2 x2 ,, n xx
其中， i 0
i 1, 2,, n 且至少存在一个l , 使得l 0 。
2. 代表偏好关系的实值函数的存在性 定理 1.1：如果二元关系 满足完备性、传递性、连续性和严格单调性，则必存在
（1） （2）
又由于 f 是严格递增函数，所以有： f (u( x)) f (u( y)) u y 。＃ （1）+（2） ： x y f (()
定理 1.2 表明，代表偏好关系 的效用函数并不是唯一的，对于任意一个消费 束，可以对应无数的效用值，这也说明效用值的大小并没有什么真正的实际经 济含义（类似地一个商品的边际效用也只有在与其他商品的边际效用比较大小
te x ，则 t R , 由偏
好的完备性知： t Pt ( x) Lt ( x) ，或者说： P t ( x) Lt ( x) R 。当 t 足够大时， te x ， 由偏好的严格单调性，知 te x ，所以 Pt ( x) 是非空集；由于 0 Lt ( x) ，所以 Lt ( x) 也是 非空集。又由偏好的连续性知： Pt ( x) 与 Lt ( x) 都是闭集。两个闭集要覆盖正实数轴，其
实值效用函数来代表这种偏好关系。 在两种物品的情况下， 这样的偏好可以用一族不相交、 凸向原点并且沿东北方向递 增的无差异曲线来表示。如下图：
接下来， 我们考虑消费者所处的市场环境并结构化可行集。 我们在这研究完全竞争 的市场环境，在这样的一个市场环境中，由于消费者的数量巨大，所以每个消费者的消 费选择对市场价格的影响不大，因此，在这样一个市场环境中，可以把市场价格向量
- 1、下载文档前请自行甄别文档内容的完整性，平台不提供额外的编辑、内容补充、找答案等附加服务。
- 2、"仅部分预览"的文档,不可在线预览部分如存在完整性等问题,可反馈申请退款(可完整预览的文档不适用该条件!)。
- 3、如文档侵犯您的权益，请联系客服反馈,我们会尽快为您处理(人工客服工作时间：9:00-18:30)。
• Points A and B should make the consumer equally happy. • Points B and C should make the consumer equally happy. • This implies that A and C would make the consumer equally happy. • But C has more of both goods compared to A.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi
Indifference curve, I1 0 Quantity of Pizza
Four Properties of Indifference Curves • Property 3: Indifference curves do not cross.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi C
B
D I2 A Indifference curve, I1 Quantity of Pizza
0
Representing Preferences with Indifference Curves • The Consumer’s Preferences
250
C Consumer’s budget constraint
A 0 50 100 Quantity of Pizza
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The slope of the budget constraint line equals the relative price of the two goods, that is, the price of one good compared to the price of the other. • It measures the rate at which the consumer can trade one good for the other.
QuickQuiz
• If a person’s income is $1000 and the price of Pepsi is $5 and the price of pizza is $10, what is the slope of this budget constraint?
PREFERENCES: WHAT THE CONSUMER WANTS
• The theory of consumer choice addresses the following questions:
• Do all demand curves slope downward? • How do wages affect labor supply? • How do interest rates affect household saving?
Figure 2 The Consumer’s Preferences
Quantity of Pefference curve, I1 Quantity of Pizza
0
Four Properties of Indifference Curves • Property 2: Indifference curves are downward sloping.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi C
B MRS 1 A 0
D I2 Indifference curve, I1 Quantity of Pizza
Four Properties of Indifference Curves • Higher indifference curves are preferred to lower ones. • Indifference curves are downward sloping. • Indifference curves do not cross. • Indifference curves are bowed inward.
• The budget constraint shows the various combinations of goods the consumer can afford given his or her income and the prices of the two goods.
The Consumer’s Budget Constraint
The Theory of Consumer Choice
6
为什么你买东西会犹豫？
• 王大妈是个很会过日子的人，买东西精打细算。 王大妈是个很会过日子的人，买东西精打细算。 这天她准备做午饭，看着家里没什么菜了， 这天她准备做午饭，看着家里没什么菜了，就去 菜市场买菜。她先买了白菜、萝卜和西红柿， 菜市场买菜。她先买了白菜、萝卜和西红柿，花 了10元钱；又买了豆腐和粉条，花了5元钱。一看 元钱；又买了豆腐和粉条，花了 元钱。 元钱 元钱 钱包里只剩下2元钱了 本来还想买一斤肉， 元钱了， 钱包里只剩下 元钱了，本来还想买一斤肉，可钱 不够了。这怎么办？不买肉吧，孩子喜欢吃肉， 不够了。这怎么办？不买肉吧，孩子喜欢吃肉， 没有肉他又会嚷嚷了。那还得买。 没有肉他又会嚷嚷了。那还得买。王大妈这时才 觉得白菜、萝卜和西红柿买多了， 觉得白菜、萝卜和西红柿买多了，于是找卖菜的 想退掉一些。买了菜还要退货？真少见。 想退掉一些。买了菜还要退货？真少见。好在卖 菜的见王大妈是老主顾，就退了她5元钱的菜 元钱的菜。 菜的见王大妈是老主顾，就退了她 元钱的菜。王 大妈于是花7元钱买了一斤肉 元钱买了一斤肉， 大妈于是花 元钱买了一斤肉，心满意足的回了家 。
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The budget constraint depicts the limit on the consumption “bundles” that a consumer can afford.
Figure 1 The Consumer’s Budget Constraint
Quantity of Pepsi 500 B
Consumer’s budget constraint
A 0 100 Quantity of Pizza
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• People consume less than they desire because their spending is constrained, or limited, by their income.
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The slope at any point on an indifference curve is the marginal rate of substitution.
• It is the rate at which a consumer is willing to trade one good for another. • It is the amount of one good that a consumer requires as compensation to give up one unit of the other good.
• A consumer’s preference among consumption bundles may be illustrated with indifference curves.
Representing Preferences with Indifference Curves • An indifference curve is a curve that shows consumption bundles that give the consumer the same level of satisfaction.
Four Properties of Indifference Curves • Property 1: Higher indifference curves are preferred to lower ones.
• Consumers usually prefer more of something to less of it. • Higher indifference curves represent larger quantities of goods than do lower indifference curves.
• The Consumer’s Budget Constraint
• Alternately, the consumer can buy 50 pizzas and 250 pints of Pepsi.
Figure 1 The Consumer’s Budget Constraint
Quantity of Pepsi 500 B
• People are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little. • These differences in a consumer’s marginal substitution rates cause his or her indifference curve to bow inward.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi
Indifference curve, I1 0 Quantity of Pizza
Four Properties of Indifference Curves • Property 3: Indifference curves do not cross.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi C
B
D I2 A Indifference curve, I1 Quantity of Pizza
0
Representing Preferences with Indifference Curves • The Consumer’s Preferences
250
C Consumer’s budget constraint
A 0 50 100 Quantity of Pizza
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The slope of the budget constraint line equals the relative price of the two goods, that is, the price of one good compared to the price of the other. • It measures the rate at which the consumer can trade one good for the other.
QuickQuiz
• If a person’s income is $1000 and the price of Pepsi is $5 and the price of pizza is $10, what is the slope of this budget constraint?
PREFERENCES: WHAT THE CONSUMER WANTS
• The theory of consumer choice addresses the following questions:
• Do all demand curves slope downward? • How do wages affect labor supply? • How do interest rates affect household saving?
Figure 2 The Consumer’s Preferences
Quantity of Pefference curve, I1 Quantity of Pizza
0
Four Properties of Indifference Curves • Property 2: Indifference curves are downward sloping.
Figure 2 The Consumer’s Preferences
Quantity of Pepsi C
B MRS 1 A 0
D I2 Indifference curve, I1 Quantity of Pizza
Four Properties of Indifference Curves • Higher indifference curves are preferred to lower ones. • Indifference curves are downward sloping. • Indifference curves do not cross. • Indifference curves are bowed inward.
• The budget constraint shows the various combinations of goods the consumer can afford given his or her income and the prices of the two goods.
The Consumer’s Budget Constraint
The Theory of Consumer Choice
6
为什么你买东西会犹豫？
• 王大妈是个很会过日子的人，买东西精打细算。 王大妈是个很会过日子的人，买东西精打细算。 这天她准备做午饭，看着家里没什么菜了， 这天她准备做午饭，看着家里没什么菜了，就去 菜市场买菜。她先买了白菜、萝卜和西红柿， 菜市场买菜。她先买了白菜、萝卜和西红柿，花 了10元钱；又买了豆腐和粉条，花了5元钱。一看 元钱；又买了豆腐和粉条，花了 元钱。 元钱 元钱 钱包里只剩下2元钱了 本来还想买一斤肉， 元钱了， 钱包里只剩下 元钱了，本来还想买一斤肉，可钱 不够了。这怎么办？不买肉吧，孩子喜欢吃肉， 不够了。这怎么办？不买肉吧，孩子喜欢吃肉， 没有肉他又会嚷嚷了。那还得买。 没有肉他又会嚷嚷了。那还得买。王大妈这时才 觉得白菜、萝卜和西红柿买多了， 觉得白菜、萝卜和西红柿买多了，于是找卖菜的 想退掉一些。买了菜还要退货？真少见。 想退掉一些。买了菜还要退货？真少见。好在卖 菜的见王大妈是老主顾，就退了她5元钱的菜 元钱的菜。 菜的见王大妈是老主顾，就退了她 元钱的菜。王 大妈于是花7元钱买了一斤肉 元钱买了一斤肉， 大妈于是花 元钱买了一斤肉，心满意足的回了家 。
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The budget constraint depicts the limit on the consumption “bundles” that a consumer can afford.
Figure 1 The Consumer’s Budget Constraint
Quantity of Pepsi 500 B
Consumer’s budget constraint
A 0 100 Quantity of Pizza
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• People consume less than they desire because their spending is constrained, or limited, by their income.
THE BUDGET CONSTRAINT: WHAT THE CONSUMER CAN AFFORD
• The slope at any point on an indifference curve is the marginal rate of substitution.
• It is the rate at which a consumer is willing to trade one good for another. • It is the amount of one good that a consumer requires as compensation to give up one unit of the other good.
• A consumer’s preference among consumption bundles may be illustrated with indifference curves.
Representing Preferences with Indifference Curves • An indifference curve is a curve that shows consumption bundles that give the consumer the same level of satisfaction.
Four Properties of Indifference Curves • Property 1: Higher indifference curves are preferred to lower ones.
• Consumers usually prefer more of something to less of it. • Higher indifference curves represent larger quantities of goods than do lower indifference curves.
• The Consumer’s Budget Constraint
• Alternately, the consumer can buy 50 pizzas and 250 pints of Pepsi.
Figure 1 The Consumer’s Budget Constraint
Quantity of Pepsi 500 B
• People are more willing to trade away goods that they have in abundance and less willing to trade away goods of which they have little. • These differences in a consumer’s marginal substitution rates cause his or her indifference curve to bow inward.