EC270 Chapter Notes - Chapter 3: Budget Constraint, Price Discrimination, Reservation Price
Document Summary
Market demand for a product is the aggregate of individual demands. Without preference ordering, we are reduced to random choices without an future. Good managers understand that they and take actions to influence consumer choice. This is the idea underlying the use of marketing, pricing, and distributional strategies. In examining how consumers choose, we initially assume a consumer is rational and wishes to maximize his or her well-being. Consumers do not make choices that cause them hard. A rational customer maximizes his or her well-being given the price of goods, personal tastes and preferences for goods, and income. We formally model this behaviour by developing the concepts of utility functions, indifference curves, and budget lines using them we derive the consumer"s demand curve for products and show how demand shifts when income changes. We initially assume consumers can purchase only food products and clothing. Indifference curve contains points representing market bundles among with the consumer is indifferent.
