ECO204Y5 Chapter Notes - Chapter 3.1-3.3, 3.5: Market Basket, Marginal Utility, Rationality
Document Summary
Co(cid:374)su(cid:373)er prefere(cid:374)ces; budget co(cid:374)strai(cid:374)ts; co(cid:374)su(cid:373)er choice; margi(cid:374)al utility. Description & explanation of how consumers allocate incomes among different goods/services to maximize their well-being. Consumer behavior is best understood in 3 distinct steps: consumer preferences: the first step is to find a practical way to describe the reasons people might prefer one good to another. We will see how a consumer"s preferences for various goods can be described graphically & algebraically: budget constraints: consumers also consider prices. Therefore, we consider the fact that consumers have limited incomes which restrict the quantities they can buy. We find the answer to this question by putting consumer preferences & budget constraints together (in the 3rd step): consumer choices: given preferences & limited incomes, consumers choose to buy combinations of goods that maximize satisfaction. These combinations will depend on the prices of various goods. Thus, understanding consumer choice will help us understand demand.
