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1.2- Consumer Behaviour and Rational Choice.pdf

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Olivia Mesta

When modelling consumer choice assumptions must be made about consumer behaviour including 1 consumers are rational beings who seek to maximize individual wellbeingWellbeing arises from the goodsthat an individual chooses to purchase with the income that they have availableIndifference curvesmap out all market bundles the provide individuals with the same wellbeing such that the individual is indifferent about which bundle they choosethings to remember1 A consumer may have many indifference curves2 have a downward slope implies that an individual will prefer more of a commodity to less3 An individual consumers indifference curves cannot intersect each otherif they could intersect contradicts 2 The marginal rate of substitutionrepresents the number of units of product Y to receive an additional unit of productX while maintaining the same level of wellbeingis found by multiplying the slope at a given point on the indifference curve by 1Utility Maximization concept of utility a consumers indifference curve show their tastes and preferencesWe are able to assign a level ofwellbeing called utility to each available market bundle of goodsUtility indicates the level of preference attached by a consumer to a particular market bundle and all market bundles that lie on the same indifference curve will have
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