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Lecture 7 :
Basis ofconsumer behavior
Economic surplus 8
~
for consumers
Value
Nnarginal
consumer
8 Consumer surplus -1
Values to
gµfggfM@ng
⇐
Surplus
defined
cost to sellers
consumer surplus 8
Total Value
the demand
-
-
the
curve
supply
curve
consumers minus the Price
P
consumer
S
Surplus
Priceline
p*
Paid for the Product
.
.
.
.
.
.
.
.
.
. .
÷
Demand
Expenditure
☐
,
Q*
-
-
-
marginal
Value
Value 8
added unit =p
for
one
a
*
change
p*
=
marginal
. .
.
o
-
-
-
-
=
Consumer surplus + Expenditure
Values Value
for
one more
•
''
;
÷"
:!
Value
Q*j
value
marginal
=p
*
p*
I*
consumer
G
surplus
large
value
Marginal
more
,
The value of
Expenditure
Total
consumer
P☐
surplus
-
-
-
-
-
s
Pw
-
-
-
-
-
-
-
-
-
-
,
÷
Total
=
expenditure
+ Cs
D
0
high marginal
Value
unit
=
p*
Parttwo3gm
Lecture 7 :
Basis ofconsumer behavior
is
conceptual measure of
Utility
*
Assume that consumers make choices to maximize
*
Assess
*
a
based
utility
Utility theory
observed
on
-1 ✗ total
marginal
utility
utility
¥p
a
p
if the Price of item
as
✗
higher
lower
utility
§
;¥÷÷¥¥
a
Particular type of
••
oooo
Q
(cups of coffee )
'
a
1-
Px
* marginal
↳
✗
A benefit is the marginal utility of the next
•
no
change
utility
decreases
2
3
on
-
in
item
we can
✗
shift
expenditure in
i
as
consumption
Q
increases
unit Purchased
maximize
=
gained from
last dollar spent
maximized
Note : There will be
utility
1¥
MUX
↳ MUY
marginal utility
utility
&
F. Y
consumption
this is how the
utility
choices
.
-9
consumption
higher marginal
"
3
consumer
or value
goes up 8
the price goes up
lower
•
2
consumer
a
derive less value from successive units of
8 Consumers
consumption
cost ✗
satisfaction
*
our
terms of
Py
•
20
utility gained from
last
dollar
on
item
spending s
to
g-
spent
y
equalize both
maximizing utility
of these items
utility
80
=
To
4=4
Lecture 7 :
partthree3wmm
•"
utility
-
declines
and
same
declining
As the Price increases
/
as
demand
consumption
individual demand
curve slopes downward
-
MV
MU is not the
maximization :
marginal utility is
-
i÷÷÷
derived from
Individual demand curve
•
market demand : Just individual
demand curves
added together
market demand curve slopes
downward
can
move
in
[
opposite direction
•
•
substitution effects : How do
effects 8
Income
relatiuep-ri.es
affect behaviour ?
A Purchasing Power
Giffen Goods
Normal Goods
Income sub
Pp
downward
slope
⇐
po
substitution effect : buying less of a Produc
1- as the Price goes up
effect
-
←←
•
B
•
-
a
P,
po
⇐b•µ
income
-
•
-
A
I
1
Qi
Income effect
dominates sub
effect
§p
to
p
Qo
go
Ql
Inferior Goods
P,
downward
slope
⇐
1-
*
→•%:b
B
substitution effect dominates
so
a•
1
Q
I
Qo
the income effect
as
the Price
effect
moves
goes
up
,
to the left
the substitution