【正文】 2020 Pearson AddisonWesley The direction of the substitution effect never varies: When the relative price falls, the consumer always substitutes more of that good for other goods. The substitution effect is the first reason why the demand curve slopes downward. Predicting Consumer Choices 169。 2020 Pearson AddisonWesley The price of a movie then falls to $4. The budget line rotates outward. Lisa’s best affordable point is now J in part (a). In part (b), Lisa moves to point B, which is a movement along her demand curve for movies. Predicting … 169。 2020 Pearson AddisonWesley If the indifference curve is relatively steep, the MRS is high. In this case, the person is willing to give up a large quantity of y to get a bit more x. If the indifference curve is relatively flat, the MRS is low. In this case, the person is willing to give up a small quantity of y to get more x. Preferences and Indifference Curves 169。 2020 Pearson AddisonWesley A Change in Prices A change in the price of the good on the xaxis changes the slope of the budget line. Figure (a) shows the rotation of a budget line after a change in the relative price of movies. Consumption Possibilities 169。 2020 Pearson AddisonWesley You buy your music online and play it on an iPod. As the prices of a music download and an iPod have tumbled, the volume of downloads and sales of iPods have skyrocketed. The price of a DVD has fallen and we’re buying ever more of them. But we’re also going to movie theaters in evergreater numbers. Why are we going to the movies more when it is cheaper to buy a DVD? This chapter studies a model of choice that answers this question. 169。 2020 Pearson AddisonWesley Bounded Rationality Bounded rationality is rationality that is bounded by the puting power of the human brain. Faced with uncertainty, consumers cannot rationally make choices and instead rely on other decisionmaking methods such as rules of thumb, listening to the views of others, or gut instinct. New Ways of Explaining Consumer Choices 169。 2020 Pearson AddisonWesley A Rise in Ine When ine increases, the demand for a normal good increases. Given the prices of movies and soda, when Lisa’s ine increases from $40 to $56 a month, she buys more movies and more soda. Movies and soda are normal goods. Table shows these predictions. Predictions of Marginal Utility Theory 169。 2020 Pearson AddisonWesley UtilityMaximizing Choice In row C, MUS/PS = MUM/PM. Lisa is maximizing utility. 169。 2020 Pearson AddisonWesley A more natural way of finding the consumer equilibrium is to use the idea of choices made at the margin. Choosing at the Margin Having made a choice, would spending a dollar more or a dollar less on a good bring more total utililty? Marginal utility is the increase in total utility that results from consuming one more unit of the good. The marginal utility per dollar is the marginal utility from a good that results from spending one more dollar on it. UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley Table shows Lisa’s marginal utility schedules. Marginal utility from a good decreases as the quantity of the good increases. For example, as the number of movies seen in a month increases, marginal utility from movies decreases. Maximizing Utility 169。 2020 Pearson AddisonWesley The choices you make as a buyer of goods and services is influenced by many factors, which economists summarize as ? Consumption possibilities ? Preferences Consumption Possibilities Consumption possibilities are all the things that you can afford to buy. Consumption Choices 169。 2020 Pearson AddisonWesley We’ll study the consumption possibilities of Lisa, who buys only two goods: movies and soda. A Consumer’s Budget Line Consumption possibilities are limited by ine, the price of a movie, and the price of soda. When Lisa spends all of her ine, she reaches the limits of her consumption possibilities. Lisa’s budget line shows the limits of her consumption possibilities. Consumption Choices 169。 2020 Pearson AddisonWesley Figure (a) shows Lisa’s total utility and marginal utility from soda. Total utility from soda increases as more soda is consumed. The bars along the total utility curve show the extra total utility (marginal utility) from each additional case of soda. Maximizing Utility 169。 2020 Pearson AddisonWesley The marginal utility per dollar equals the marginal utility from a good divided by its price. Calling the marginal utility from movies MUM and the price of a movie PM, then the marginal utility per dollar from movies is MUM/PM . Calling the marginal utility of soda MUS and the price of soda PS , then the marginal utility per dollar from soda is MUS/PS. By paring MUM/PM and MUS/PS , we can determine whether Lisa has allocated her budget in the way that maximizes her total utility. UtilityMaximizing Choice 169。 2020 Pearson AddisonWesley A Fall in the Price of a Movie When the price of a good falls the quantity demanded of that good increases—the demand curve slopes downward. For example, if the price of a movie falls, we know that MUM/PM rises, so before the consumer changes the quantities bought, MUM/PM MUS/PS. To restore consumer equilibrium (maximum total utility), the consumer increases the movies seen to drive down the MUM and restore MUM/PM = MUS/PS. Predictions of Marginal Utility Theory 169。 2020 Pearson Addis