CAS EC 101 Lecture Notes - Lecture 9: Asian Supermarket, Behavioral Economics, Economic Surplus

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Michael Manove

Document Summary

Cq: when the price of sugar increases by 5%, the quantity of molasses supplied increases by. Consumer decide what to purchase - primarily a question of psychology. Economists traditionally have used models of rational, self-interested consumers . Traditional models do not include the psychological factors that guide consumers. But traditional models are useful for predicting consumer demand. Now, many economists work in the field of behavioral economics, which incorporates economics and psychology. According to the classical model, people consume in order to get satisfaction or utility. Different quantities of various goods and services provide different amounts of utility. Rational people want to purchase a combination of goods and services that will maximize their utilitywithin the constraints (limits) imposed by their income and wealth. Economists also use the neoclassical model, which is more abstract and may be misleading. Suppose a consumer has a fixed income that she can spend. She will try to get the most utility from dollar after dollar.