MGCR 293 Lecture Notes - Lecture 8: Market Basket, Substitute Good, Demand Curve
29 Sep 2016
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Spend all money on one single product. Consumer consumes none of one good, will maximize utility by choosing a market basket which contains all from one good. Ex: lisa has 80$ to allocate to movie tickets and pizza. Each ticket is 8$ and each pizza is 16$. Her marginal rate of substitution of pizza for movie ticket =1 , regardless of market basket. She would only buy movie tickets because they are cheaper and her mrs is 1, therefore two goods are considered as perfect substitutes. Ready to give up 1 unit of good 1 for 1 unit of good 2. Spend whole money on the product which is cheaper. If you spend all your money on pizza you will get less units, diminishing utility. Shows relationship between units and price at different variables. Managers can change consumer choices by influencing preferences through advertising strategies and by influencing the budget line through pricing strategies.
