ARE 3222 Lecture Notes - Lecture 4: Consumer Behaviour, Budget Constraint, Indifference Curve
29 Jan 2020
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Document Summary
Theory of consumer behavior: description of how consumers allocate incomes among different goods and services to maximize their well-being. Consumer behavior is best understood in three distinct steps: consumer preferences, budget constraints, consumer choices. Recent models of consumer behavior incorporate more realistic assumptions about rationality and decision making. A basic workhorse of economics, out model makes simplifying assumptions to explain much of what we actually observe regarding consumer choice and the characteristics of consumer demand. Market baskets (or bundle): list with specific quantities of one or more goods. Consumer preferences: completeness: preferences are assumed to be complete, transitivity: preferences are transitive. Transitivity means that if a consumer prefers basket a to basket b and basket b to basket c, then the consumer also prefers a to c. Transitivity is normally regarded as necessary for consumer consistency: more is better than less:j goods are assumed to be desirable-i. e. to be good. Consequently, consumers always prefer more of any good to less.
