Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 9 views

    Chapter 5

    Uploaded by

    75rsq26d7f
    This document summarizes key concepts in consumer theory from Chapter 5 of Managerial Economics by Thomas and Maurice. It discusses utility functions, indifference curves, marginal rates of substitution, budget constraints, and how consumers maximize utility subject to their budget by allocating income such that marginal utility per dollar is equal across goods purchased. Utility maximization occurs at the point of tangency between the consumer's indifference curve and budget line.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Chapter 5

    Uploaded by

    75rsq26d7f
    9 views19 pages
    This document summarizes key concepts in consumer theory from Chapter 5 of Managerial Economics by Thomas and Maurice. It discusses utility functions, indifference curves, marginal rates of substitution, budget constraints, and how consumers maximize utility subject to their budget by allocating income such that marginal utility per dollar is equal across goods purchased. Utility maximization occurs at the point of tangency between the consumer's indifference curve and budget line.

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document summarizes key concepts in consumer theory from Chapter 5 of Managerial Economics by Thomas and Maurice. It discusses utility functions, indifference curves, marginal rates of substitution, budget constraints, and how consumers maximize utility subject to their budget by allocating income such that marginal utility per dollar is equal across goods purchased. Utility maximization occurs at the point of tangency between the consumer's indifference curve and budget line.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views19 pages

    Chapter 5

    Uploaded by

    75rsq26d7f
    This document summarizes key concepts in consumer theory from Chapter 5 of Managerial Economics by Thomas and Maurice. It discusses utility functions, indifference curves, marginal rates of substitution, budget constraints, and how consumers maximize utility subject to their budget by allocating income such that marginal utility per dollar is equal across goods purchased. Utility maximization occurs at the point of tangency between the consumer's indifference curve and budget line.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 19

    Managerial Economics Thomas

    eighth edition Maurice

    Chapter 5

    Theory of
    Consumer Behavior
    The McGraw-Hill Series
    2 Managerial Economics

    Utility
    • Benefits consumers obtain from
    goods & services they consume is
    utility
    • A utility function shows an
    individual’s perception of the utility
    level attained from consuming
    each conceivable bundle of goods

    2 The McGraw-Hill Series


    3 Managerial Economics

    Theory of Consumer Behavior


    • Assume consumers have complete
    information about availability, prices, &
    utility levels of all goods & services
    • All bundles of goods can be ranked
    based on their ability to provide utility –
    for any pair of bundles A & B:
    • Prefer bundle A to bundle B
    • Prefer bundle B to bundle A
    • Indifferent between the two bundles

    3 The McGraw-Hill Series


    4 Managerial Economics

    Indifference Curves
    • Locus of points representing different
    bundles of goods, each of which yields
    the same level of total utility
    • Negatively sloped & convex
    • Marginal rate of substitution (MRS)
    • Absolute value of the slope of the
    indifference curve
    • Diminishes along the indifference curve as X
    increases & Y decreases

    4 The McGraw-Hill Series


    5 Managerial Economics
    Typical Indifference Curve
    (Figure 5.1)

    5 The McGraw-Hill Series


    6 Managerial Economics

    Indifference Map (Figure 5.3)

    Quantity of Y

    IV

    III

    II

    Quantity of X

    6 The McGraw-Hill Series


    7 Managerial Economics

    Marginal Utility
    • Addition to total utility attributable
    to the addition of one unit of a
    good to the current rate of
    consumption, holding constant the
    amounts of all other goods
    consumed

    MU = U X

    7 The McGraw-Hill Series


    8 Managerial Economics

    Marginal Rate of Substitution


    • MRS shows the rate at which one
    good can be substituted for another
    while keeping utility constant
    • Negative of the slope of the
    indifference curve
    • Ratio of the marginal utilities of the
    goods
    Y MU X
    MRS  − =
    X MUY
    8 The McGraw-Hill Series
    9 Managerial Economics

    Consumer’s Budget Line


    • Shows all possible commodity
    bundles that can be purchased at
    given prices with a fixed money
    income
    M = PX X + PY Y
    or
    M PX
    Y = − X
    PY PY
    9 The McGraw-Hill Series
    10 Managerial Economics

    The McGraw-Hill Series


    11 Managerial Economics

    The McGraw-Hill Series


    12 Managerial Economics

    The McGraw-Hill Series


    13 Managerial Economics

    The McGraw-Hill Series


    14 Managerial Economics

    The McGraw-Hill Series


    15 Managerial Economics

    The McGraw-Hill Series


    16 Managerial Economics

    The McGraw-Hill Series


    17 Managerial Economics

    Utility Maximization
    • Utility maximization subject to a
    limited money income occurs at the
    combination of goods for which the
    indifference curve is just tangent to
    the budget line

    Y MU X PX
    MRS = − = =
    X MUY PY

    17 The McGraw-Hill Series


    18 Managerial Economics

    Utility Maximization
    • Consumer allocates income so that
    the marginal utility per dollar spent
    on each good is the same for all
    commodities purchased

    MU X MUY
    =
    PX PY

    18 The McGraw-Hill Series


    19 Managerial Economics

    The McGraw-Hill Series

    You might also like