【正文】 Lecture 4 Consumer Behavior 1 Chapter 1 Topics to be Discussed ? Consumer Preferences ? Budget Constraints ? Consumer Choice ? Revealed Preferences ? Marginal Utility and Consumer Choices ? CostofLiving Indexes 2 Chapter 1 Consumer Purchasing Decision Making Process Preference Budget Constraint Choice 3 Chapter 1 Consumer Behavior ? Two applications that illustrate the importance of the economic theory of consumer behavior are: ? AppleCinnamon Cheerios ? The Food Stamp Program. 4 Chapter 1 Consumer Behavior ? General Mills had to determine how high a price to charge for AppleCinnamon Cheerios before it went to the market. 5 Chapter 1 Consumer Behavior ? When the food stamp program was established 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. 6 Chapter 1 Consumer Behavior ? These two problems require an understanding of the economic theory of consumer behavior. 7 Chapter 1 Consumer Behavior ? There 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. 2) Then we will turn to budget constraints. ?People have limited ines. 8 Chapter 1 Consumer Behavior ? There are three steps involved in the study of consumer behavior. 3) Finally, we will bine consumer preferences and budget constraints to determine consumer choices. ?What bination of goods will consumers buy to maximize their satisfaction? 9 Chapter 1 Example Do you agree with the following statement? 湖南人不怕辣，貴州人辣不怕，四川人怕不辣，可見四川人最能吃辣椒。 10 Chapter 1 Consumer Preferences ? A market basket is a collection of one or more modities. ? One market basket may be preferred over another market basket containing a different bination of goods. Market Baskets 11 Chapter 1 Consumer Preferences ? Three Basic Assumptions 1) Preferences are plete. 2) Preferences are transitive. 3) Consumers always prefer more of any good to less. Market Baskets 12 Chapter 1 Consumer Preferences A 20 30 B 10 50 D 40 20 E 30 40 G 10 20 H 10 40 Market Basket Units of Food Units of Clothing 13 Chapter 1 Consumer Preferences ? Indifference curves represent all binations of market baskets that provide the same level of satisfaction to a person. Indifference Curves 14 Chapter 1 The consumer prefers A to all binations in the blue box, while all those in the pink box are preferred to A. Consumer Preferences Food (units per week) 10 20 30 40 10 20 30 40 Clothing (units per week) 50 G A E H B D 15 Chapter 1 U1 Combination B,A, D yield the same satisfaction ?E is preferred to U1 ?U1 is preferred to H G Consumer Preferences Food (units per week) 10 20 30 40 10 20 30 40 Clothing (units per week) 50 G D A E H B 16 Chapter 1 Consumer Preferences ? Indifference Curves ? Indifference curves slope downward to the right. ?If it sloped upward it would violate the assumption that more of any modity is preferred to less. ? Any market basket lying above and to the right of an indifference curve is preferred to any market basket that lies on the indifference curve. 17 Chapter 1 Consumer Preferences ? An indifference map is a set of indifference curves that describes a person’s preferences for all binations of two modities. ? Each indifference curve in the map shows the market baskets among which the person is indifferent. Indifference Maps 18 Chapter 1 Consumer Preferences ? Indifference Curves ? Finally, indifference curves cannot cross. ?This would violate the assumption that more is preferred to less. 19 Chapter 1 U2 U3 Consumer Preferences Food (units per week) Clothing (units per week) U1 A B D Market basket A is preferred to B. Market basket B is preferred to D. 20 Chapter 1 U1 U2 Consumer Preferences Food (units per week) Clothing (units per week) A D B The consumer should be indifferent between A, B and D. However, B contains more of both goods than D. Indifference Curves Cannot Cross 21 Chapter 1 A B D E G 1 6 1 1 4 2 1 1 Observation: The amount of clothing given up for a unit of food decreases from 6 to 1 Consumer Preferences Food (units per week) Clothing (units per week) 2 3 4 5 1 2 4 6 8 10 12 14 16 Question: Does this relation hold for giving up food to get clothing? 22 Chapter 1 Consumer Preferences ? The marginal rate of substitution (MRS) quantifies the amount of one good a consumer will give up to obtain more of another good. ? It is measured by the slope of the indifference curve. Marginal Rate of Substitution 23 Chapter 1 Consumer Preferences Food (units per week) Clothing (units per week) 2 3 4 5 1 2 4 6 8 10 12 14 16 A B D E G 6 1 1 1 1 4 2 1 MRS = 6 MRS = 2 FCMRS ????24 Chapter 1 Consumer Preferences ? We will now add a fourth assumption regarding consumer preference: ? Along an 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 Substitution 25 Chapter 1 Consumer Preferences ? Question ? What are the first three assumptions? Marginal Rate of Substitution 26 Chapter 1 Consumer Preferences ? Indifference 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 pr