1、Lecture three copyright： qinwang 2013Q SHUFE school of international businessConsumer behaviorRational or irrationalRational behavioro Individual Decision is about two facets：o In element market， you are suppliero In product market， you are a consumero Money is not easy to gain. How to make your con
2、sumption decisions to maximize total satisfaction from consuming various goods and services.1、 Utility2、 Budget3、 consumer decisionUtilityo Benefits consumers obtain from goods & services they consume is utilityo A utility function shows an individuals perception of the utility level attained from c
3、onsuming each conceivable bundle of goodsBudgetn Consumers decision is subject to the constraint that spending on goods exactly equals the individuals money incomeConsumers Budget Lineo Shows all possible commodity bundles that can be purchased at given prices with a fixed money incomeorQuantity of
4、YQuantity of XABIndifference Curveso Locus of points representing different bundles of goods, each of which yields the same level of total utilityo Negatively sloped & convexConstrained Utility Maximization AICBIIRTQuantity of burgersQuantity of pizzas0 8020 10040 6010203040507010 9030 50EIIIDIV4515The best choice: Utility Maximizationo Consumer allocates income so that the marginal utility per dollar spent on each goods is the same for all commodities purchased
