Week 13: Consumer Behavior and Utility
Consumer Behavior and Utility 1. The Theory of Consumer Choice The Theory of Consumer Choice is a fundamental concept in economics that explores how consumers make decisions regarding the purchase of goods and services based on their preferences and budget constraints. This theory is based on several assumptions: Rationality: Consumers aim to maximize their utility (satisfaction) from the consumption of goods and services. Preferences: Consumers have clear preferences among different bundles of goods and services. Budget Constraint: Consumers face limitations on their purchasing power, determined by their income and the prices of goods and services. 2. Total and Marginal Utility Total Utility (TU) refers to the total satisfaction or usefulness that a consumer derives from consuming a certain quantity of a good or service within a specific period. It reflects the overall benefit obtained from the consumption of a product. Marginal Utility (MU) is the additional satisfaction gained from ...