PB HLTH 126 Lecture Notes - Lecture 2: Consumer Choice, Budget Constraint, Marginal Cost

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Consumer theory, theory of the firm and market equilibrium. Understand consumer theory and the theory of demand, including the factors that affect demand and its elasticity. Consumer has income and they are deciding what to buy with that income. You have access to all sorts of stuff. Consumers have preferences for different baskets of goods that can be ranked. Higher ranked baskets have a higher utility or happiness. More of a good is better, but there are diminishing marginal turns. Maximum utility for a budget constraint occurs when mu1/p1. Slope of the indifference curve is the marginal rate of substitution (mrs) The opportunity cost of a choice: value of the best alternative that was not chosen. When a consumer makes a choice to consume a good or service, the opportunity cost is the lost opportunity of consuming another good or service with those funds.

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