微观经济学英文课件：chapter-3 Consumer Behavior

1、Chapter 3Consumer Behavior1Chapter 1Topics to be DiscussedConsumer PreferencesBudget ConstraintsConsumer ChoiceRevealed Preferences2Chapter 1Topics to be DiscussedMarginal Utility and Consumer ChoicesCost-of-Living Indexes3Chapter 1Consumer BehaviorTwo applications that illustrate the importance of

2、the economic theory of consumer behavior are:Apple-Cinnamon CheeriosThe Food Stamp Program.4Chapter 1Consumer BehaviorGeneral Mills had to determine how high a price to charge for Apple-Cinnamon Cheerios before it went to the market.5Chapter 1Consumer BehaviorWhen the food stamp program was establis

3、hed in the early 1960s, the designers had to determine to what extent the food stamps would provide people with more food and not just simply subsidize the food they would have bought anyway.6Chapter 1Consumer BehaviorThese two problems require an understanding of the economic theory of consumer beh

4、avior.7Chapter 1Consumer BehaviorThere are three steps involved in the study of consumer behavior.1) We will study consumer preferences.To describe how and why people prefer one good to another.8Chapter 1Consumer BehaviorThere are three steps involved in the study of consumer behavior.2)Then we will

5、 turn to budget constraints.People have limited incomes.9Chapter 1Consumer BehaviorThere are three steps involved in the study of consumer behavior.3) Finally, we will combine consumer preferences and budget constraints to determine consumer choices.What combination of goods will consumers buy to ma

6、ximize their satisfaction?10Chapter 1Consumer PreferencesA market basket is a collection of one or more commodities.One market basket may be preferred over another market basket containing a different combination of goods.Market Baskets11Chapter 1Consumer PreferencesThree Basic Assumptions 1) Prefer

7、ences are complete.2) Preferences are transitive.3) Consumers always prefer more of any good to less.Market Baskets12Chapter 1Consumer PreferencesA2030B1050D4020E3040G1020H1040Market BasketUnits of Food Units of Clothing13Chapter 1Consumer PreferencesIndifference curves represent all combinations of

8、 market baskets that provide the same level of satisfaction to a person.Indifference Curves14Chapter 1The consumer prefersA to all combinationsin the blue box, whileall those in the pinkbox are preferred to A.Consumer PreferencesFood(units per week)1020304010203040Clothing(units per week)50GAEHBD15C

9、hapter 1U1Combination B,A, & Dyield the same satisfactionE is preferred to U1U1 is preferred to H & GConsumer PreferencesFood(units per week)1020304010203040Clothing(units per week)50GDAEHB16Chapter 1Consumer PreferencesIndifference CurvesIndifference curves slope downward to the right.If it sloped

10、upward it would violate the assumption that more of any commodity is preferred to less.17Chapter 1Consumer PreferencesIndifference CurvesAny market basket lying above and to the right of an indifference curve is preferred to any market basket that lies on the indifference curve.18Chapter 1Consumer P

11、referencesAn indifference map is a set of indifference curves that describes a persons preferences for all combinations of two commodities.Each indifference curve in the map shows the market baskets among which the person is indifferent.Indifference Maps19Chapter 1Consumer PreferencesIndifference Cu

12、rvesFinally, indifference curves cannot cross.This would violate the assumption that more is preferred to less.20Chapter 1U2U3Consumer PreferencesFood(units per week)Clothing(units per week)U1ABDMarket basket Ais preferred to B.Market basket B ispreferred to D.21Chapter 1U1U2Consumer PreferencesFood

13、(units per week)Clothing(units per week)ADBThe consumer shouldbe indifferent betweenA, B and D. However,B contains more ofboth goods than D.Indifference CurvesCannot Cross22Chapter 1ABDEG-1-611-4-211Observation: The amountof clothing given up for a unit of food decreasesfrom 6 to 1Consumer Preferenc

14、esFood(units per week)Clothing(units per week)23451246810121416Question: Does thisrelation hold for givingup food to get clothing?23Chapter 1Consumer PreferencesThe marginal rate of substitution (MRS) quantifies the amount of one good a consumer will give up to obtain more of another good.It is meas

15、ured by the slope of the indifference curve.Marginal Rate of Substitution24Chapter 1Consumer PreferencesFood(units per week)Clothing(units per week)23451246810121416ABDEG-61111-4-2-1MRS = 6MRS = 225Chapter 1Consumer PreferencesWe will now add a fourth assumption regarding consumer preference:Along a

16、n indifference curve there is a diminishing marginal rate of substitution.Note the MRS for AB was 6, while that for DE was 2.Marginal Rate of Substitution26Chapter 1Consumer PreferencesQuestionWhat are the first three assumptions?Marginal Rate of Substitution27Chapter 1Consumer PreferencesIndifferen

17、ce curves are convex because as more of one good is consumed, a consumer would prefer to give up fewer units of a second good to get additional units of the first one.Consumers prefer a balanced market basketMarginal Rate of Substitution28Chapter 1Consumer PreferencesPerfect Substitutes and Perfect

18、ComplementsTwo goods are perfect substitutes when the marginal rate of substitution of one good for the other is constant.Marginal Rate of Substitution29Chapter 1Consumer PreferencesPerfect Substitutes and Perfect ComplementsTwo goods are perfect complements when the indifference curves for the good

19、s are shaped as right angles.Marginal Rate of Substitution30Chapter 1Consumer PreferencesOrange Juice(glasses)Apple Juice(glasses)234112340PerfectSubstitutes31Chapter 1Consumer PreferencesRight ShoesLeftShoes234112340PerfectComplements32Chapter 1Consumer PreferencesBADSThings for which less is prefe

20、rred to moreExamplesAir pollutionAsbestos33Chapter 1Consumer PreferencesWhat Do You Think?How can we account for Bads in the analysis of consumer preferences?34Chapter 1Consumer PreferencesAutomobile executives must regularly decide when to introduce new models and how much money to invest in restyl

21、ing.Designing New Automobiles (I)35Chapter 1Consumer PreferencesAn analysis of consumer preferences would help to determine when and if car companies should change the styling of their cars.Designing New Automobiles (I)36Chapter 1Consumer PreferencesThese consumers arewilling to give up considerable

22、styling for additionalperformanceStylingPerformanceConsumerPreference A:High MRS37Chapter 1Consumer PreferencesThese consumers arewilling to give upconsiderableperformance for additional stylingStylingPerformanceConsumerPreference B:Low MRS38Chapter 1Consumer PreferencesWhat Do You Think?How can we

23、determine the consumers preference?Designing New Automobiles (I)39Chapter 1Consumer PreferencesA recent study of automobile demand in the United States shows that over the past two decades most consumers have preferred styling over performance.Designing New Automobiles (I)40Chapter 1Consumer Prefere

24、ncesGrowth of Japanese Imports1970s and 1980s15% of domestic cars underwent a style change each yearThis compares to 23% for importsDesigning New Automobiles (I)41Chapter 1Consumer PreferencesUtilityUtility: Numerical score representing the satisfaction that a consumer gets from a given market baske

25、t.42Chapter 1Consumer PreferencesUtilityIf buying 3 copies of Microeconomics makes you happier than buying one shirt, then we say that the books give you more utility than the shirt.43Chapter 1Consumer PreferencesUtility FunctionsAssume:The utility function for food (F) and clothing (C) U(F,C) = F +

26、 2C Market Baskets: F units C units U(F,C) = F + 2C A 8 3 8 + 2(3) = 14 B 6 4 6 + 2(4) = 14 C 4 4 4 + 2(4) = 12 The consumer is indifferent to A & B The consumer prefers A & B to C44Chapter 1Consumer PreferencesFood(units per week)10155510150Clothing(unitsper week)U1 = 25U2 = 50 (Preferred to U1)U3

27、= 100 (Preferred to U2)ABCAssume: U = FCMarket Basket U = FCC 25 = 2.5(10)A 25 = 5(5)B 25 = 10(2.5)Utility Functions & Indifference Curves45Chapter 1Consumer PreferencesOrdinal Versus Cardinal UtilityOrdinal Utility Function: places market baskets in the order of most preferred to least preferred, b

28、ut it does not indicate how much one market basket is preferred to another.Cardinal Utility Function: utility function describing the extent to which one market basket is preferred to another.46Chapter 1Consumer PreferencesOrdinal Versus Cardinal RankingsThe actual unit of measurement for utility is

29、 not important.Therefore, an ordinal ranking is sufficient to explain how most individual decisions are made.47Chapter 1Budget ConstraintsPreferences do not explain all of consumer behavior.Budget constraints also limit an individuals ability to consume in light of the prices they must pay for vario

30、us goods and services.48Chapter 1Budget ConstraintsThe Budget LineThe budget line indicates all combinations of two commodities for which total money spent equals total income.49Chapter 1Budget ConstraintsThe Budget LineLet F equal the amount of food purchased, and C is the amount of clothing.Price

31、of food = Pf and price of clothing = PcThen Pf F is the amount of money spent on food, and Pc C is the amount of money spent on clothing.50Chapter 1Budget ConstraintsThe budget line then can be written:51Chapter 1Budget ConstraintsA040$80B2030$80D4020$80E6010$80G800$80Market BasketFood (F) Clothing

32、(C)Total SpendingPf = ($1)Pc = ($2)PfF + PcC = I52Chapter 1Budget Line F + 2C = $801020(I/PC) = 40Budget ConstraintsFood(units per week)406080 = (I/PF)201020300ABDEGClothing(unitsper week)Pc = $2 Pf = $1 I = $8053Chapter 1Budget ConstraintsThe Budget LineAs consumption moves along a budget line from

33、 the intercept, the consumer spends less on one item and more on the other.The slope of the line measures the relative cost of food and clothing.The slope is the negative of the ratio of the prices of the two goods.54Chapter 1Budget ConstraintsThe Budget LineThe slope indicates the rate at which the

34、 two goods can be substituted without changing the amount of money spent.55Chapter 1Budget ConstraintsThe Budget LineThe vertical intercept (I/PC), illustrates the maximum amount of C that can be purchased with income I.The horizontal intercept (I/PF), illustrates the maximum amount of F that can be

35、 purchased with income I.56Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesIncome ChangesAn increase in income causes the budget line to shift outward, parallel to the original line (holding prices constant).57Chapter 1Budget ConstraintsThe Effects of Changes in Income and Pric

36、esIncome ChangesA decrease in income causes the budget line to shift inward, parallel to the original line (holding prices constant).58Chapter 1Budget ConstraintsFood(units per week)Clothing(unitsper week)8012016040204060800A increase inincome shiftsthe budget lineoutward(I = $160)L2(I = $80)L1L3(I

37、=$40)A decrease inincome shiftsthe budget lineinward59Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesPrice ChangesIf the price of one good increases, the budget line shifts inward, pivoting from the other goods intercept.60Chapter 1Budget ConstraintsThe Effects of Changes in I

38、ncome and PricesPrice ChangesIf the price of one good decreases, the budget line shifts outward, pivoting from the other goods intercept.61Chapter 1Budget ConstraintsFood(units per week)Clothing(unitsper week)801201604040(PF = 1)L1An increase in theprice of food to$2.00 changesthe slope of thebudget

39、 line androtates it inward.L3(PF = 2)(PF = 1/2)L2A decrease in theprice of food to$.50 changesthe slope of thebudget line androtates it outward.62Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesPrice ChangesIf the two goods increase in price, but the ratio of the two prices is

40、unchanged, the slope will not change.63Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesPrice ChangesHowever, the budget line will shift inward to a point parallel to the original budget line.64Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesPrice ChangesIf

41、 the two goods decrease in price, but the ratio of the two prices is unchanged, the slope will not change.65Chapter 1Budget ConstraintsThe Effects of Changes in Income and PricesPrice ChangesHowever, the budget line will shift outward to a point parallel to the original budget line.66Chapter 1Consum

42、er ChoiceConsumers choose a combination of goods that will maximize the satisfaction they can achieve, given the limited budget available to them.67Chapter 1Consumer ChoiceThe maximizing market basket must satisfy two conditions:1) It must be located on the budget line.2) Must give the consumer the

43、most preferred combination of goods and services.68Chapter 1Recall, the slope of an indifference curve is:Consumer ChoiceFurther, the slope of the budget line is:69Chapter 1Consumer ChoiceTherefore, it can be said that satisfaction is maximized where: 70Chapter 1Consumer ChoiceIt can be said that sa

44、tisfaction is maximized when marginal rate of substitution (of F and C) is equal to the ratio of the prices (of F and C).71Chapter 1Consumer ChoiceFood (units per week)Clothing(units per week)4080202030400U1BBudget LinePc = $2 Pf = $1 I = $80Point B does not maximize satisfaction because theMRS (-(-

45、10/10) = 1 is greater than the price ratio (1/2).-10C+10F72Chapter 1Consumer ChoiceBudget LineU3DMarket basket D cannot be attainedgiven the currentbudget constraint.Pc = $2 Pf = $1 I = $80Food (units per week)Clothing(units per week)408020203040073Chapter 1U2Consumer ChoicePc = $2 Pf = $1 I = $80Bu

46、dget LineAAt market basket A the budget line and theindifference curve aretangent and no higherlevel of satisfaction can be attained.At A:MRS =Pf/Pc = .5Food (units per week)Clothing(units per week)408020203040074Chapter 1Consumer ChoiceConsider two groups of consumers, each wishing to spend $10,000

47、 on the styling and performance of cars.Each group has different preferences.Designing New Automobiles (II)75Chapter 1Consumer ChoiceBy finding the point of tangency between a groups indifference curve and the budget constraint auto companies can design a production and marketing plan.Designing New

48、Automobiles (II)76Chapter 1Designing New Automobiles (II)StylingPerformance$10,000$10,000$3,000These consumersare willing to tradeoff a considerableamount of stylingfor some additionalperformance$7,00077Chapter 1Designing New Automobiles (II)Styling$10,000$10,000$3,000These consumersare willing to t

49、radeoff a considerableamount of performance forsome additionalstyling$7,000Performance78Chapter 1Consumer ChoiceChoosing between a non-matching and matching grant to fund police expendituresDecision Making & Public Policy79Chapter 1Consumer ChoiceNon-matching GrantPoliceExpenditures ($)PrivateExpend

50、itures ($)OPQU1ABefore Grant Budget line: PQA: Preference maximizing market basket ExpenditureOR: PrivateOS: PoliceRS80Chapter 1VTU3U1After Grant Budget line: TVB: Preference maximizing market basket ExpenditureOU: PrivateOZ: PoliceBUZRConsumer ChoiceNon-matching GrantPPoliceExpenditures ($)PrivateE

51、xpenditures ($)OSQA81Chapter 1PRU2TU1Consumer ChoiceMatching GrantPolice ($)PrivateExpenditures ($)OQSRBefore Grant Budget line: PQ A: Preference maximizing market basket After GrantC: Preference maximizing market basketExpendituresOW: PrivateOX: PoliceCXWA82Chapter 1TU3U1Nonmatching GrantPoint BOU:

52、 Private expenditureOZ: Police expenditureMatching GrantPoint COW: Private expenditureOX: Police expenditureWXConsumer ChoiceMatching GrantPPolice ($)PrivateExpenditures ($)OQAU2CRBUZ83Chapter 1Consumer ChoiceA corner solution exists if a consumer buys in extremes, and buys all of one category of go

53、od and none of another. This exists where the indifference curves are tangent to the horizontal and vertical axis.MRS is not equal to PA/PBA Corner Solution84Chapter 1A Corner SolutionIce Cream (cup/month)FrozenYogurt(cupsmonthly)BAU2U3U1A corner solutionexists at point B.85Chapter 1Consumer ChoiceA

54、 Corner SolutionAt point B, the MRS of ice cream for frozen yogurt is greater than the slope of the budget line.This suggests that if the consumer could give up more frozen yogurt for ice cream he would do so.However, there is no more frozen yogurt to give up!86Chapter 1Consumer ChoiceA Corner Solut

55、ionWhen a corner solution arises, the consumers MRS does not necessarily equal the price ratio.In this instance it can be said that:87Chapter 1Consumer ChoiceA Corner SolutionIf the MRS is, in fact, significantly greater than the price ratio, then a small decrease in the price of frozen yogurt will

56、not alter the consumers market basket.88Chapter 1Consumer ChoiceSuppose Jane Does parents set up a trust fund for her college education.Originally, the money must be used for education.A College Trust Fund89Chapter 1Consumer ChoiceIf part of the money could be used for the purchase of other goods, h

57、er consumption preferences change.A College Trust Fund90Chapter 1 The trust fund shifts the budget lineConsumer ChoicePQEducation ($)OtherConsumption($)U2A College Trust FundAU1A: Consumption before the trust fundB B: Requirement that the trust fund must be spent on educationCU3C: If the trust could

58、 be spent on other goods91Chapter 1Revealed PreferencesIf we know the choices a consumer has made, we can determine what her preferences are if we have information about a sufficient number of choices that are made when prices and incomes vary.92Chapter 1DRevealed Preferences-Two Budget Linesl1l2BAI

59、1: Chose A over B A is revealed preferred to Bl2: Choose B over D B is revealed preferred to DFood (units per month)Clothing(units permonth)93Chapter 1B is preferred toall market baskets in the green areaRevealed Preferences-Two Budget Linesl2Bl1DAAll market basketsin the pinkshaded area are preferr

60、ed to A.Food (units per month)Clothing(units permonth)94Chapter 1All market baskets in the pink area preferred to AFood (units per month)Revealed Preferences-Four Budget LinesClothing(units permonth)l1l2l3l4A: preferred to allmarket baskets in the green areaEBAGI3: E revealed preferred to A I4: G re