微观经济学Consumer-Behavior.ppt

Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,Chapter 3,*,2005 Pearson Education,Inc.,Chapter 3,Consumer Behavior,Chapter 3,Introduction,How are consumer preferences used to determine demand?,How do consumers allocate income to the purchase of different goods?,How do consumers with limited income decide what to buy?,2005 Pearson Education,Inc.,2,Chapter 3,Introduction,How can we determine the nature of consumer preferences for observations of consumer behavior?,How can cost of living indexes measure the well-being of consumers?,2005 Pearson Education,Inc.,3,Chapter 3,Consumer Behavior-Applications,How would General Mills determine the price to charge for a new cereal before it went to the market?,To what extent did the food stamp program provide individuals with more food versus merely subsidizing food they bought anyway?,2005 Pearson Education,Inc.,4,Chapter 3,Consumer Behavior,The theory of consumer behavior can be used to help answer these and many more questions,Theory of consumer behavior,The explanation of how consumers allocate income to the purchase of different goods and services,2005 Pearson Education,Inc.,5,Chapter 3,Consumer Preferences,How might a consumer compare different groups of items available for purchase?,A,market basket,is a collection of one or more commodities,Individuals can choose between market baskets containing different goods,2005 Pearson Education,Inc.,8,Chapter 3,Consumer Preferences Basic Assumptions,Preferences are,complete,Consumers can rank market baskets,Preferences are,transitive,If they prefer A to B,and B to C,they must prefer A to C,Consumers,always prefer more,of any good to less,More is better,2005 Pearson Education,Inc.,9,Chapter 3,Consumer Preferences,Consumer preferences can be represented graphically using,indifference curves,Indifference curves represent all combinations of market baskets that the person is,indifferent to,A person will be equally satisfied with either choice,2005 Pearson Education,Inc.,10,Chapter 3,Indifference Curves:An Example,Market Basket,Units of Food,Units of Clothing,A,20,30,B,10,50,D,40,20,E,30,40,G,10,20,H,10,40,2005 Pearson Education,Inc.,11,Chapter 3,Indifference Curves:An Example,Graph the points with one good on the x-axis and one good on the y-axis,Plotting the points,we can make some immediate observations about preferences,More is better,2005 Pearson Education,Inc.,12,Chapter 3,The consumer prefers,A,to all combinations,in the yellow box,while,all those in the pink,box are preferred to,A.,Indifference Curves:An Example,Food,10,20,30,40,10,20,30,40,Clothing,50,G,A,E,H,B,D,2005 Pearson Education,Inc.,13,Chapter 3,Indifference Curves:An Example,Points such as B&D have more of one good but less of another compared to A,Need more information about consumer ranking,Consumer may decide they are indifferent between B,A and D,We can then connect those points with an indifference curve,2005 Pearson Education,Inc.,14,Chapter 3,Indifferent between points B,A,&D,E,is preferred to points on,U,1,Points on U,1,are preferred to,H&G,Indifference Curves:An Example,Food,10,20,30,40,10,20,30,40,Clothing,50,U,1,G,D,A,E,H,B,2005 Pearson Education,Inc.,15,Chapter 3,Indifference Curves,Any market basket lying northeast of an indifference curve is preferred to any market basket that lies on the indifference curve,Points on the curve are preferred to points southwest of the curve,2005 Pearson Education,Inc.,16,Chapter 3,Indifference Curves,Indifference curves slope downward to the right,If they sloped upward,they would violate the assumption that more is preferred to less,Some points that had more of both goods would be indifferent to a basket with less of both goods,2005 Pearson Education,Inc.,17,Chapter 3,Indifference Curves,To describe preferences for all combinations of goods/services,we have a set of indifference curves an,indifference map,Each indifference curve in the map shows the market baskets among which the person is indifferent,2005 Pearson Education,Inc.,18,Chapter 3,U,2,U,3,Indifference Map,Food,Clothing,U,1,A,B,D,Market basket,A,is preferred to,B.,Market basket,B,is,preferred to,D.,2005 Pearson Education,Inc.,19,Chapter 3,Indifference Maps,Indifference maps give more information about shapes of indifference curves,Indifference curves cannot cross,Violates assumption that more is better,Why?What if we assume they can cross?,2005 Pearson Education,Inc.,20,Chapter 3,Indifference Maps,Food,Clothing,B is preferred to D,A is indifferent to B&D,B must be indifferent to D but that cant be if B is preferred to D,U,1,U,1,U,2,U,2,A,B,D,2005 Pearson Education,Inc.,21,Chapter 3,Indifference Curves,The shapes of indifference curves describe how a consumer is willing to substitute one good for another,A to B,give up 6 clothing to get 1 food,D to E,give up 2 clothing to get 1 food,The more clothing and less food a person has,the more clothing they will give up to get more food,2005 Pearson Education,Inc.,22,Chapter 3,A,B,D,E,G,-1,-6,1,1,-4,-2,1,1,Observation:The amount,of clothing given up for,1 unit of food decreases,from 6 to 1,Indifference Curves,Food,Clothing,2,3,4,5,1,2,4,6,8,10,12,14,16,2005 Pearson Education,Inc.,23,Chapter 3,Indifference Curves,We measure how a person trades one good for another using the,marginal rate of substitution(MRS),It 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,2005 Pearson Education,Inc.,24,Chapter 3,Marginal Rate of Substitution,Food,2,3,4,5,1,Clothing,2,4,6,8,10,12,14,16,A,B,D,E,G,-6,1,1,1,1,-4,-2,-1,MRS,=6,MRS,=2,2005 Pearson Education,Inc.,25,Chapter 3,Marginal Rate of Substitution,Indifference curves are convex,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 generally prefer a balanced market basket,2005 Pearson Education,Inc.,26,Chapter 3,Marginal Rate of Substitution,The MRS decreases as we move down the indifference curve,Along an indifference curve there is a,diminishing marginal rate of substitution,.,The MRS went from 6 to 4 to 1,2005 Pearson Education,Inc.,27,Chapter 3,Marginal Rate of Substitution,Indifference curves with different shapes imply a different willingness to substitute,Two polar cases are of interest,Perfect substitutes,Perfect complements,2005 Pearson Education,Inc.,28,Chapter 3,Marginal Rate of Substitution,Perfect Substitutes,Two goods are perfect substitutes when the marginal rate of substitution of one good for the other is constant,Example:a person might consider apple juice and orange juice perfect substitutes,They would always trade 1 glass of OJ for 1 glass of Apple Juice,2005 Pearson Education,Inc.,29,Chapter 3,Consumer Preferences,Orange Juice,(glasses),Apple,Juice,(glasses),2,3,4,1,1,2,3,4,0,Perfect,Substitutes,2005 Pearson Education,Inc.,30,Chapter 3,Consumer Preferences,Perfect Complements,Two goods are perfect complements when the indifference curves for the goods are shaped as right angles,Example:If you have 1 left shoe and 1 right shoe,you are indifferent between having more left shoes only,Must have one right for one left,2005 Pearson Education,Inc.,31,Chapter 3,Consumer Preferences,Right Shoes,Left,Shoes,2,3,4,1,1,2,3,4,0,Perfect,Complements,2005 Pearson Education,Inc.,32,Chapter 3,Consumer Preferences,We have assumed all our commodities are“goods”,There are commodities we dont want more of-bads,Things for which less is preferred to more,Examples,Air pollution,Asbestos,2005 Pearson Education,Inc.,33,Chapter 3,Consumer Preferences,How do we account for bads in our preference analysis?,We redefine the commodity,Clean air,Pollution reduction,Asbestos removal,2005 Pearson Education,Inc.,34,Chapter 3,Consumer Preferences:An Application,In designing new cars,automobile executives must determine how much time and money to invest in restyling versus increased performance,Higher demand for car with better styling and performance,Both cost more to improve,2005 Pearson Education,Inc.,35,Chapter 3,Consumer Preferences:An Application,An analysis of consumer preferences would help to determine where to spend more on change:performance or styling,Some consumers will prefer better styling and some will prefer better performance,2005 Pearson Education,Inc.,36,Chapter 3,Consumer Preferences:An Application,These consumers place a greater value on performance than styling,Styling,Performance,2005 Pearson Education,Inc.,37,Chapter 3,Consumer Preferences:An Application,These consumers place a greater value on styling than performance,Styling,Performance,2005 Pearson Education,Inc.,38,Chapter 3,Consumer Preferences:An Application,Knowing which group dominates the market will help decide where redesigning dollars should go,A recent study in the US shows that over the past two decades,most consumers have preferred styling over performance,2005 Pearson Education,Inc.,39,Chapter 3,Consumer Preferences,The theory of consumer behavior does not required assigning a numerical value to the level of satisfaction,Although ranking of market baskets is good,sometimes numerical value is useful,2005 Pearson Education,Inc.,40,Chapter 3,Consumer Preferences,Utility,A numerical score representing the satisfaction that a consumer gets from a given market basket,If 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,2005 Pearson Education,Inc.,41,Chapter 3,Utility,Utility function,Formula that assigns a level of utility to individual market baskets,If the utility function is,U(F,C)=F+2C,A market basket with 8 units of food and 3 units of clothing gives a utility of,14=8+2(3),2005 Pearson Education,Inc.,42,Chapter 3,Utility-Example,Market Basket,Food,Clothing,Utility,A,8,3,82(3)=14,B,6,4,6+2(4)=14,C,4,4,4+2(4)=12,Consumer is indifferent between A&B and prefers both to C,2005 Pearson Education,Inc.,43,Chapter 3,Utility-Example,Baskets for each level of utility can be plotted to get an indifference curve,To find the indifference curve for a utility of 14,we can change the combinations of food and clothing that give us a utility of 14,2005 Pearson Education,Inc.,44,Chapter 3,Utility-Example,Food,10,15,5,5,10,15,0,Clothing,U,1,=,25,U,2,=,50,U,3,=,100,A,B,C,BasketU =FC,C25=2.5(10),A25=5(5),B25=10(2.5),2005 Pearson Education,Inc.,45,Chapter 3,Utility,Although we numerically rank baskets and indifference curves,numbers are,ONLY,for ranking,A utility of 4 is not necessarily twice as good as a utility of 2,There are two types of rankings,Ordinal ranking,Cardinal ranking,2005 Pearson Education,Inc.,46,Chapter 3,Utility,Ordinal Utility Function,Places market baskets in the order of most preferred to least preferred,but 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,2005 Pearson Education,Inc.,47,Chapter 3,Utility,The actual unit of measurement for utility is not important,An ordinal ranking is sufficient to explain how most individual decisions are made,2005 Pearson Education,Inc.,48,Chapter 3,Budget Constraints,Preferences 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 various goods and services,2005 Pearson Education,Inc.,49,Chapter 3,Budget Constraints,The Budget Line,Indicates all combinations of two commodities for which total money spent equals total income,We assume only 2 goods are consumed,so we do not consider savings,2005 Pearson Education,Inc.,50,Chapter 3,The Budget Line,Let F equal the amount of food purchased,and C is the amount of clothing,Price of food=P,F,and price of clothing=P,C,Then P,F,F is the amount of money spent on food,and P,C,C is the amount of money spent on clothing,2005 Pearson Education,Inc.,51,Chapter 3,The Budget Line,The budget line then can be written:,All income is allocated to food(F)and/or clothing(C),2005 Pearson Education,Inc.,52,Chapter 3,The Budget Line,Different choices of food and clothing can be calculated that use all income,These choices can be graphed as the budget line,Example:,Assume income of$80/week,P,F,=$1 and P,C,=$2,2005 Pearson Education,Inc.,53,Chapter 3,Budget Constraints,Market Basket,Food,P,F,=$1,Clothing,P,C,=$2,Income,I=P,F,F+P,C,C,A,0,40,$80,B,20,30,$80,D,40,20,$80,E,60,10,$80,G,80,0,$80,2005 Pearson Education,Inc.,54,Chapter 3,The Budget Line,10,20,A,B,D,E,G,(,I/P,C,)=40,Food,40,60,80=(,I/P,F,),20,10,20,30,0,Clothing,2005 Pearson Education,Inc.,55,Chapter 3,The Budget Line,As consumption moves along a budget line from 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,2005 Pearson Education,Inc.,56,Chapter 3,The Budget Line,The slope indicates the rate at which the two goods can be substituted without changing the amount of money spent,We can rearrange the budget line equation to make this more clear,2005 Pearson Education,Inc.,57,Chapter 3,The Budget Line,2005 Pearson Education,Inc.,58,Chapter 3,Budget Constraints,The Budget Line,The vertical intercept,I/P,C,illustrates the maximum amount of C that can be purchased with income I,The horizontal intercept,I/P,F,illustrates the maximum amount of F that can be purchased with income I,2005 Pearson Education,Inc.,59,Chapter 3,The Budget Line,As we know,income and prices can change,As incomes and prices change,there are changes in budget lines,We can show the effects of these changes on budget lines and consumer choices,2005 Pearson Education,Inc.,60,Chapter 3,The Budget Line-Changes,The Effects of Changes in Income,An increase in income causes the budget line to shift outward,parallel to the original line(holding prices constant).,Can buy more of both goods with more income,2005 Pearson Education,Inc61,Chapter 3,The Budget Line-Changes,The Effects of Changes in Income,A decrease in income causes the budget line to shift inward,parallel to the original line(holding prices constant),Can buy less of both goods with less income,2005 Pearson Education,Inc.,62,Chapter 3,The Budget Line-Changes,An increase in,income shifts,the budget line,outward,Food,(units per week),Clothing,(units,per week),80,120,160,40,20,40,60,80,0,(,I,=$160),L,2,(,I,=$80),L,1,L,3,(,I,=,$40),A decrease in,income shifts,the budget line,inward,2005 Pearson Education,Inc.,63,Chapter 3,The Budget Line-Changes,The Effects of Changes in Prices,If the price of one good increases,the budget line shifts inward,pivoting from the other goods intercept.,If the price of food increases and you buy only food(x-intercept),then you cant buy as much food.The x-intercept shifts in.,If you buy only clothing(y-intercept),you can buy th