©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 16 “consumer behavior”

1 ©2004 Prentice Hall Publishing Ayers/Collinge, 1/e

Chapter 16“Consumer Behavior”

Chapter 16“Consumer Behavior”

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

1.1. Discuss how the income effect and Discuss how the income effect and substitution effect lead to a downward substitution effect lead to a downward sloping demand curve.sloping demand curve.

2.2. Explain why marginal utility Explain why marginal utility diminishes.diminishes.

3.3. Practice the step by step utility-Practice the step by step utility-maximizing process.maximizing process.

4.4. Apply the rule of utility maximization .Apply the rule of utility maximization .

1.1. Discuss how the income effect and Discuss how the income effect and substitution effect lead to a downward substitution effect lead to a downward sloping demand curve.sloping demand curve.

2.2. Explain why marginal utility Explain why marginal utility diminishes.diminishes.

3.3. Practice the step by step utility-Practice the step by step utility-maximizing process.maximizing process.

4.4. Apply the rule of utility maximization .Apply the rule of utility maximization .


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

5.5. Relate utility maximization to the Relate utility maximization to the demand curve.demand curve.

6.6. Summarize the influences on consumer Summarize the influences on consumer choices.choices.

5.5. Relate utility maximization to the Relate utility maximization to the demand curve.demand curve.

6.6. Summarize the influences on consumer Summarize the influences on consumer choices.choices.


16.116.1THE LAW OF DEMAND REVISITEDTHE LAW OF DEMAND REVISITED16.116.1THE LAW OF DEMAND REVISITEDTHE LAW OF DEMAND REVISITED

• Demand slopes downward according to the Demand slopes downward according to the law of law of demand.demand.

• The law is demand is caused in part by the The law is demand is caused in part by the substitution effect.substitution effect.

• The The substitution effectsubstitution effect of a price change, which of a price change, which occurs when a lower price on a good causes a person occurs when a lower price on a good causes a person to buy more of that good instead of alternative to buy more of that good instead of alternative goods.goods.

• Likewise, the substitution effect of increasing the Likewise, the substitution effect of increasing the price of a good would drive consumers to buy more price of a good would drive consumers to buy more of the substitute good instead of the good with the of the substitute good instead of the good with the increased price.increased price.

• Demand slopes downward according to the Demand slopes downward according to the law of law of demand.demand.

• The law is demand is caused in part by the The law is demand is caused in part by the substitution effect.substitution effect.

• The The substitution effectsubstitution effect of a price change, which of a price change, which occurs when a lower price on a good causes a person occurs when a lower price on a good causes a person to buy more of that good instead of alternative to buy more of that good instead of alternative goods.goods.

• Likewise, the substitution effect of increasing the Likewise, the substitution effect of increasing the price of a good would drive consumers to buy more price of a good would drive consumers to buy more of the substitute good instead of the good with the of the substitute good instead of the good with the increased price.increased price.


o For a For a normal goodnormal good, the income effect of a , the income effect of a price change will also cause demand to price change will also cause demand to slope down.slope down.

o The income effect occurs when the price The income effect occurs when the price change affects consumer purchasing change affects consumer purchasing power, termed power, termed real incomereal income, and thus , and thus leads to a change in quantity demanded.leads to a change in quantity demanded.

o A higher price reduces real income, while A higher price reduces real income, while a lower price increases real income.a lower price increases real income.

o For a For a normal goodnormal good, the income effect of a , the income effect of a price change will also cause demand to price change will also cause demand to slope down.slope down.

o The income effect occurs when the price The income effect occurs when the price change affects consumer purchasing change affects consumer purchasing power, termed power, termed real incomereal income, and thus , and thus leads to a change in quantity demanded.leads to a change in quantity demanded.

o A higher price reduces real income, while A higher price reduces real income, while a lower price increases real income.a lower price increases real income.

The Law of Demand RevisitedThe Law of Demand RevisitedThe Law of Demand RevisitedThe Law of Demand Revisited


16.2 16.2 UTILITY AND CONSUMER UTILITY AND CONSUMER SATISFACTIONSATISFACTION

16.2 16.2 UTILITY AND CONSUMER UTILITY AND CONSUMER SATISFACTIONSATISFACTIONConsumers buy in order to obtain Consumers buy in order to obtain utilityutility, which , which

is the satisfaction received from the is the satisfaction received from the consumption of a good.consumption of a good.

The utility that people gain from their The utility that people gain from their purchases is subjective, varying from person to purchases is subjective, varying from person to person.person.

Utility is not measurable, since satisfaction is Utility is not measurable, since satisfaction is not measurable.not measurable.

Utility does not imply that a good is useful.Utility does not imply that a good is useful.

Consumers buy in order to obtain Consumers buy in order to obtain utilityutility, which , which is the satisfaction received from the is the satisfaction received from the consumption of a good.consumption of a good.

The utility that people gain from their The utility that people gain from their purchases is subjective, varying from person to purchases is subjective, varying from person to person.person.

Utility is not measurable, since satisfaction is Utility is not measurable, since satisfaction is not measurable.not measurable.

Utility does not imply that a good is useful.Utility does not imply that a good is useful.


Total and Marginal UtilityTotal and Marginal UtilityTotal and Marginal UtilityTotal and Marginal Utility

Although utility is not measurable, it can be Although utility is not measurable, it can be modeled as though it were, using the modeled as though it were, using the utilutil as its as its unit of measure.unit of measure.

Total utilityTotal utility equals the sum of the utils a person equals the sum of the utils a person receives from consuming a specific quantity of receives from consuming a specific quantity of a good.a good.

Marginal utilityMarginal utility equals the increments to total equals the increments to total utility from changes in consumption.utility from changes in consumption.

Although utility is not measurable, it can be Although utility is not measurable, it can be modeled as though it were, using the modeled as though it were, using the utilutil as its as its unit of measure.unit of measure.

Total utilityTotal utility equals the sum of the utils a person equals the sum of the utils a person receives from consuming a specific quantity of receives from consuming a specific quantity of a good.a good.

Marginal utilityMarginal utility equals the increments to total equals the increments to total utility from changes in consumption.utility from changes in consumption.



Marginal Utility = Marginal Utility = Change in total utilityChange in total utilityChange in number of Change in number of

units consumedunits consumed



0

50

100

150

Utils

First Slice Second Slice Pizza

Marginal utility

TotalUtility


Diminishing Marginal UtilityDiminishing Marginal UtilityDiminishing Marginal UtilityDiminishing Marginal Utility

The law of diminishing marginal utilityThe law of diminishing marginal utility decrees that the first unit of a good is decrees that the first unit of a good is most satisfying, after which additional most satisfying, after which additional units provide progressively less and less units provide progressively less and less additional utility.additional utility.

There is a There is a satiation pointsatiation point,, beyond which beyond which additional consumption actually reduces additional consumption actually reduces utility.utility.

The law of diminishing marginal utilityThe law of diminishing marginal utility decrees that the first unit of a good is decrees that the first unit of a good is most satisfying, after which additional most satisfying, after which additional units provide progressively less and less units provide progressively less and less additional utility.additional utility.

There is a There is a satiation pointsatiation point,, beyond which beyond which additional consumption actually reduces additional consumption actually reduces utility.utility.


When marginal utility is negative we say that When marginal utility is negative we say that a good provides a good provides disutility, which occurs disutility, which occurs beyond the satiation point.beyond the satiation point.

The total utility curve rises as long as The total utility curve rises as long as marginal utility is a positive number.marginal utility is a positive number.

When marginal utility equals zero, the total When marginal utility equals zero, the total utility curve peaks because total utility is at utility curve peaks because total utility is at its maximum value.its maximum value.

The total utility curve turns downward when The total utility curve turns downward when marginal utility becomes negative.marginal utility becomes negative.

When marginal utility is negative we say that When marginal utility is negative we say that a good provides a good provides disutility, which occurs disutility, which occurs beyond the satiation point.beyond the satiation point.

The total utility curve rises as long as The total utility curve rises as long as marginal utility is a positive number.marginal utility is a positive number.

When marginal utility equals zero, the total When marginal utility equals zero, the total utility curve peaks because total utility is at utility curve peaks because total utility is at its maximum value.its maximum value.

The total utility curve turns downward when The total utility curve turns downward when marginal utility becomes negative.marginal utility becomes negative.

Diminishing Marginal UtilityDiminishing Marginal UtilityDiminishing Marginal UtilityDiminishing Marginal Utility


Utility

Utility

Satiation point

Satiation point

Total Utility is Total Utility is maximized whenmaximized whenmarginal utility is marginal utility is zero.zero.



16.316.3MAXIMIZING UTILITY SUBJECT TO A MAXIMIZING UTILITY SUBJECT TO A BUDGET CONSTRAINTBUDGET CONSTRAINT

16.316.3MAXIMIZING UTILITY SUBJECT TO A MAXIMIZING UTILITY SUBJECT TO A BUDGET CONSTRAINTBUDGET CONSTRAINT The The budget constraintbudget constraint, a consumer’s income, curbs , a consumer’s income, curbs

the amount of total utility that can be obtained.the amount of total utility that can be obtained. Consumers must choose, while striving to spend Consumers must choose, while striving to spend

their incomes so as to obtain the greatest their incomes so as to obtain the greatest satisfaction from their incomes.satisfaction from their incomes.

Consumers maximize utility subject to their Consumers maximize utility subject to their budget constraint.budget constraint.

Utility maximizationUtility maximization is achieved when the is achieved when the consumer’s choices provide the greatest amount of consumer’s choices provide the greatest amount of total utility for a specific amount of time. total utility for a specific amount of time.

The The budget constraintbudget constraint, a consumer’s income, curbs , a consumer’s income, curbs the amount of total utility that can be obtained.the amount of total utility that can be obtained.

Consumers must choose, while striving to spend Consumers must choose, while striving to spend their incomes so as to obtain the greatest their incomes so as to obtain the greatest satisfaction from their incomes.satisfaction from their incomes.

Consumers maximize utility subject to their Consumers maximize utility subject to their budget constraint.budget constraint.

Utility maximizationUtility maximization is achieved when the is achieved when the consumer’s choices provide the greatest amount of consumer’s choices provide the greatest amount of total utility for a specific amount of time. total utility for a specific amount of time.


Spending at the MarginSpending at the MarginSpending at the MarginSpending at the Margin

• When When marginal utilitymarginal utility is divided by the is divided by the prices of goods and services, the result is prices of goods and services, the result is called marginal utility per dollar.called marginal utility per dollar.

• The The rule of utility maximizationrule of utility maximization is… is…– To maximize utility, a consumer adjust To maximize utility, a consumer adjust

spending until the marginal utility from the spending until the marginal utility from the last dollar spent on each good is the same.last dollar spent on each good is the same.

• When When marginal utilitymarginal utility is divided by the is divided by the prices of goods and services, the result is prices of goods and services, the result is called marginal utility per dollar.called marginal utility per dollar.

• The The rule of utility maximizationrule of utility maximization is… is…– To maximize utility, a consumer adjust To maximize utility, a consumer adjust

spending until the marginal utility from the spending until the marginal utility from the last dollar spent on each good is the same.last dollar spent on each good is the same.


Algebraic Statement of the Utility Algebraic Statement of the Utility Maximizing RuleMaximizing Rule

Algebraic Statement of the Utility Algebraic Statement of the Utility Maximizing RuleMaximizing Rule

Marginal Utility of XMarginal Utility of X Price of XPrice of X ==

Marginal Utility of XMarginal Utility of XPrice of Y, Price of Y,

for all goods X and Yfor all goods X and Y

If the marginal utility per dollar of product X is greaterIf the marginal utility per dollar of product X is greaterthan the marginal utility per dollar of product, consumersthan the marginal utility per dollar of product, consumersshould purchase more of product X. should purchase more of product X. Conversely, if the marginal per dollar of product Y is greater Conversely, if the marginal per dollar of product Y is greater than the marginal utility of product Y, consumers shouldthan the marginal utility of product Y, consumers shouldpurchase more of product Y. purchase more of product Y.


Utility Maximizing Utility Maximizing Utility Maximizing Utility Maximizing

1 2 3 4 5 6Number of

Movie Tickets Bought

Marginal Utility of Movies (in utils)

Marginal Utility per dollar for

movies (Marginal Uitlity/Price)

Number of Bottles of

Water Bought

Marginal Utility of Bottled Water

(in utils)

Marginal Utility per dollar for bottled water

(Marginal 1 30 10 1 8 82 27 9 2 7 73 24 8 3 6 64 18 6 4 5 55 8 2.67 5 4 46 1 0.33 6 3 3

DENISE’S PREFERENCES FOR MOVIES AND BOTTLED WATER

[Price of movie ticket = $3; Price of water = $1 per bottle; Income = $15 per week]


Utility Maximization and DemandUtility Maximization and DemandUtility Maximization and DemandUtility Maximization and Demand

When consumers When consumers maximize utilitymaximize utility their their individual demand curves for a good are individual demand curves for a good are downward sloping.downward sloping.In other words, the quantity demanded of a In other words, the quantity demanded of a good will change in the opposite direction to a good will change in the opposite direction to a change in its price.change in its price.The The law of diminishing marginal utilitylaw of diminishing marginal utility is is another explanation for the downward sloping another explanation for the downward sloping demand curve.demand curve.

When consumers When consumers maximize utilitymaximize utility their their individual demand curves for a good are individual demand curves for a good are downward sloping.downward sloping.In other words, the quantity demanded of a In other words, the quantity demanded of a good will change in the opposite direction to a good will change in the opposite direction to a change in its price.change in its price.The The law of diminishing marginal utilitylaw of diminishing marginal utility is is another explanation for the downward sloping another explanation for the downward sloping demand curve.demand curve.


Number of Movie Tickets Bought

Marginal Utility of Movies (in utils)

Marginal Utility per dollar , Price =

$3 (Marginal Uitlity/Price)

Marginal Utility per dollar, Price = $2

(Marginal Uitlity/Price)

1 30 10 152 27 9 13.53 24 8 124 18 6 95 8 2.67 46 1 0.33 0.5

A LOWER PRICE FOR MOVIE TICKETS INCREASES MARGINAL UTILITY PER DOLLAR



$3

4 Quantity of movies

$

$2

5

Utility maximization causes demand to slope downward.

Denise’s demand



16.4 EXPLORE & APPLY16.4 EXPLORE & APPLYGOOD CHOICE, BAD CHOICEGOOD CHOICE, BAD CHOICE16.4 EXPLORE & APPLY16.4 EXPLORE & APPLYGOOD CHOICE, BAD CHOICEGOOD CHOICE, BAD CHOICE

Consumers account for some 70% of Consumers account for some 70% of total spending in the U. s. economy.total spending in the U. s. economy.Predicting consumer’s choice is difficult Predicting consumer’s choice is difficult as since they are determined by as since they are determined by numerous considerations.numerous considerations.Time has utility.Time has utility.People try to allocate their time to attain People try to allocate their time to attain the greatest satisfaction, taking into the greatest satisfaction, taking into account time’s opportunity cost.account time’s opportunity cost.

Consumers account for some 70% of Consumers account for some 70% of total spending in the U. s. economy.total spending in the U. s. economy.Predicting consumer’s choice is difficult Predicting consumer’s choice is difficult as since they are determined by as since they are determined by numerous considerations.numerous considerations.Time has utility.Time has utility.People try to allocate their time to attain People try to allocate their time to attain the greatest satisfaction, taking into the greatest satisfaction, taking into account time’s opportunity cost.account time’s opportunity cost.


Good Choice, Bad ChoiceGood Choice, Bad ChoiceGood Choice, Bad ChoiceGood Choice, Bad Choice

Information also has utility.Information also has utility.The last dollar spent on information should have a The last dollar spent on information should have a marginal utility per dollar equal to the marginal marginal utility per dollar equal to the marginal utility per dollar of the last dollar spent on the utility per dollar of the last dollar spent on the consumer’s other purchases.consumer’s other purchases.Impulse buyersImpulse buyers make purchases on the spur of the make purchases on the spur of the moment without consulting information sources. moment without consulting information sources. Advertising is intended to affect consumer’s choices, Advertising is intended to affect consumer’s choices, generally with the goal of getting us to buy generally with the goal of getting us to buy something now.something now.A dollar saved can provide more satisfaction than a A dollar saved can provide more satisfaction than a dollar spent.dollar spent.

Information also has utility.Information also has utility.The last dollar spent on information should have a The last dollar spent on information should have a marginal utility per dollar equal to the marginal marginal utility per dollar equal to the marginal utility per dollar of the last dollar spent on the utility per dollar of the last dollar spent on the consumer’s other purchases.consumer’s other purchases.Impulse buyersImpulse buyers make purchases on the spur of the make purchases on the spur of the moment without consulting information sources. moment without consulting information sources. Advertising is intended to affect consumer’s choices, Advertising is intended to affect consumer’s choices, generally with the goal of getting us to buy generally with the goal of getting us to buy something now.something now.A dollar saved can provide more satisfaction than a A dollar saved can provide more satisfaction than a dollar spent.dollar spent.


Addictive BehaviorAddictive BehaviorAddictive BehaviorAddictive Behavior

Some people make choices that appear to be bad to Some people make choices that appear to be bad to others.others.

Binging behavior like overeating, smoking, binging Binging behavior like overeating, smoking, binging on alcohol, drugs, shopping, etc., are examples.on alcohol, drugs, shopping, etc., are examples.

One aspect of addiction problems is that we are One aspect of addiction problems is that we are unable to rationally control the things that give us unable to rationally control the things that give us utility. utility.

A second aspect is A second aspect is “utility in hindsight”,“utility in hindsight”, where where immediate gratification comes now, but the disutility immediate gratification comes now, but the disutility comes later.comes later.

The further into the future the disutility, the more we The further into the future the disutility, the more we are inclined to brush it aside.are inclined to brush it aside.

Some people make choices that appear to be bad to Some people make choices that appear to be bad to others.others.

Binging behavior like overeating, smoking, binging Binging behavior like overeating, smoking, binging on alcohol, drugs, shopping, etc., are examples.on alcohol, drugs, shopping, etc., are examples.

One aspect of addiction problems is that we are One aspect of addiction problems is that we are unable to rationally control the things that give us unable to rationally control the things that give us utility. utility.

A second aspect is A second aspect is “utility in hindsight”,“utility in hindsight”, where where immediate gratification comes now, but the disutility immediate gratification comes now, but the disutility comes later.comes later.

The further into the future the disutility, the more we The further into the future the disutility, the more we are inclined to brush it aside.are inclined to brush it aside.


Addictive Behavior:Addictive Behavior:Utility in HindsightUtility in Hindsight

Addictive Behavior:Addictive Behavior:Utility in HindsightUtility in Hindsight

Utility

Disutility

Marginal utility perceived at the time

Marginal utility perceived later

Quantity of binge purchases

Point where all moneyhas been spent


Terms Along the WayTerms Along the WayTerms Along the WayTerms Along the Way

substitution effectsubstitution effectincome effectincome effectutilityutilityutilutiltotal utilitytotal utilitymarginal utilitymarginal utilitydisutilitydisutility

substitution effectsubstitution effectincome effectincome effectutilityutilityutilutiltotal utilitytotal utilitymarginal utilitymarginal utilitydisutilitydisutility

law of diminishing law of diminishing marginal utilitymarginal utility

satiation pointsatiation pointmarginal utility marginal utility

per dollarper dollar

law of diminishing law of diminishing marginal utilitymarginal utility

satiation pointsatiation pointmarginal utility marginal utility

per dollarper dollar


Test YourselfTest YourselfTest YourselfTest Yourself

1.1. When the price of a normal good decreasesWhen the price of a normal good decreasesa.a. the income and substitute effects both prompt the the income and substitute effects both prompt the

consumer to purchase more of the good.consumer to purchase more of the good.b.b. the income and substitute effects both prompt the the income and substitute effects both prompt the

consumer to purchase less of the good.consumer to purchase less of the good.c.c. the income effect prompts the consumer to purchase the income effect prompts the consumer to purchase

less of the good, but the substitution effect prompts the less of the good, but the substitution effect prompts the consumer to purchase more.consumer to purchase more.

d.d. the income effect prompts the consumer to purchase the income effect prompts the consumer to purchase more of the good, but the substitution effect prompts more of the good, but the substitution effect prompts the consumer to purchase less.the consumer to purchase less.

1.1. When the price of a normal good decreasesWhen the price of a normal good decreasesa.a. the income and substitute effects both prompt the the income and substitute effects both prompt the

consumer to purchase more of the good.consumer to purchase more of the good.b.b. the income and substitute effects both prompt the the income and substitute effects both prompt the

consumer to purchase less of the good.consumer to purchase less of the good.c.c. the income effect prompts the consumer to purchase the income effect prompts the consumer to purchase

less of the good, but the substitution effect prompts the less of the good, but the substitution effect prompts the consumer to purchase more.consumer to purchase more.

d.d. the income effect prompts the consumer to purchase the income effect prompts the consumer to purchase more of the good, but the substitution effect prompts more of the good, but the substitution effect prompts the consumer to purchase less.the consumer to purchase less.



2.2. Which of the following best describes the concept Which of the following best describes the concept of utility?of utility?

a.a. Utility is measurable.Utility is measurable.b.b. The utility of a good must rise the more useful it The utility of a good must rise the more useful it

is.is.c.c. Utility is subjective.Utility is subjective.d.d. The utility provided by any particular good will The utility provided by any particular good will

be the same for most consumers.be the same for most consumers.

2.2. Which of the following best describes the concept Which of the following best describes the concept of utility?of utility?

a.a. Utility is measurable.Utility is measurable.b.b. The utility of a good must rise the more useful it The utility of a good must rise the more useful it

is.is.c.c. Utility is subjective.Utility is subjective.d.d. The utility provided by any particular good will The utility provided by any particular good will

be the same for most consumers.be the same for most consumers.



3.3. The util is The util is a.a. unrelated to the concept of utility.unrelated to the concept of utility.b.b. measurable with highly sensitive measurable with highly sensitive

electronic equipment.electronic equipment.c.c. used by economist to to illustrate used by economist to to illustrate

diminishing marginal utility .diminishing marginal utility .d.d. a special kind of money used in a special kind of money used in

economic experiments.economic experiments.

3.3. The util is The util is a.a. unrelated to the concept of utility.unrelated to the concept of utility.b.b. measurable with highly sensitive measurable with highly sensitive

electronic equipment.electronic equipment.c.c. used by economist to to illustrate used by economist to to illustrate

diminishing marginal utility .diminishing marginal utility .d.d. a special kind of money used in a special kind of money used in

economic experiments.economic experiments.



4.4. Marginal utility will be negative when Marginal utility will be negative when the total utility curve is the total utility curve is

a.a. rising.rising.

b.b. falling.falling.

c.c. at its maximum.at its maximum.

d.d. in the negative range.in the negative range.

4.4. Marginal utility will be negative when Marginal utility will be negative when the total utility curve is the total utility curve is

a.a. rising.rising.

b.b. falling.falling.

c.c. at its maximum.at its maximum.

d.d. in the negative range.in the negative range.



5.5. Consumer equilibrium requires the consumer Consumer equilibrium requires the consumer to to

a.a. maximize total utility.maximize total utility.

b.b. maximize marginal utility.maximize marginal utility.

c.c. purchase amounts of each good so that their purchase amounts of each good so that their marginal utilities are equal.marginal utilities are equal.

d.d. ignore the price of a good in deciding how ignore the price of a good in deciding how much to consume and consider only the much to consume and consider only the utility of a purchase.utility of a purchase.

5.5. Consumer equilibrium requires the consumer Consumer equilibrium requires the consumer to to

a.a. maximize total utility.maximize total utility.

b.b. maximize marginal utility.maximize marginal utility.

c.c. purchase amounts of each good so that their purchase amounts of each good so that their marginal utilities are equal.marginal utilities are equal.

d.d. ignore the price of a good in deciding how ignore the price of a good in deciding how much to consume and consider only the much to consume and consider only the utility of a purchase.utility of a purchase.



6.6. The marginal utility per dollar of a The marginal utility per dollar of a good equals the goods marginal utility good equals the goods marginal utility

a.a. multiplied by $1.multiplied by $1.

b.b. divided by $1.divided by $1.

c.c. divided by the price of the good.divided by the price of the good.

d.d. multiplied by the price of the good.multiplied by the price of the good.

6.6. The marginal utility per dollar of a The marginal utility per dollar of a good equals the goods marginal utility good equals the goods marginal utility

a.a. multiplied by $1.multiplied by $1.

b.b. divided by $1.divided by $1.

c.c. divided by the price of the good.divided by the price of the good.

d.d. multiplied by the price of the good.multiplied by the price of the good.


The End!The End!Next Chapter 16Next Chapter 16

AppendixAppendix

©2004 prentice hall publishing ayers/collinge, 1/e 1 chapter 16 “consumer behavior”

Documents

price change

good causes

substitute good

lower price

increased price

substitution effect

othe income effect

downward sloping demand