Chapter 6: Theory of Consumer Choice or Behavior
- Basic Concepts
- Consumer Choice
- Law of diminishing marginal utility
- Consumer Surplus
- The price in the market would favor consumers who placed a higher value on a product than the market price paid by all consumers
- The Basic Tenets of the Theory of Consumer Choice
- The Consumer is Rational
- The consumer wants to get the most satisfaction (utility) for the money spent on goods
- The Consumer Can Rank Goods
- In order of preference
- The Consumer Understands Diminishing Marginal Utility
- Marginal utility
- the addition to total satisfaction
- Diminishing marginal utility
- at some point in the consumption pattern of a good, each additional unit consumer yields less satisfaction (utility)
- The Consumer Faces Constraints of Prices and Incomes
- The Utility-Maximizing Rule
- The consumer wants to obtain as much extra satisfaction for one good per its price as will be obtained from any other good per its price, given the amount of income available
- MUA = MUB = MUC = …
PA PB PC
- MU – maximum utility
- P – price
- Consumer Surplus
- The difference between the utility gained and the price paid by the consumer.
- The utility gained would measure the value of the product to the consumer.
- The price paid by the consumer would be the market price.
- Income and Substitution Effects
- Income Effect
- As the price of a particular good decreases, a consumer can afford more of it and other goods
- Substitution Effect
- As the price of a particular good decreases, a consumer may buy more of this good relative to the price of a substitute good
- Help explain the downward sloping demand curve
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Aboukhadijeh, Feross. "Chapter 6: Theory of Consumer Choice or Behavior" StudyNotes.org. Study Notes, LLC., 12 Oct. 2013. Web. 17 Jan. 2021. <https://www.apstudynotes.org/microeconomics/outlines/chapter-6-theory-of-consumer-choice-or/>.