Econ Exam 3

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Econ Exam 3
2010-12-02 10:44:25
Consumer Decision Making

Consumer Decision Making
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  1. 4 elements of consumer choice
    • income
    • prices of goods
    • tastes, which rank bundles according to utility
    • utility maximization
  2. Budget constraint
    • maximum affordale quantitiy of one good given the quantity of other goods purchased
    • illustrated by the budget line
  3. Budget line
    • illustrates bundles that are available given the budget constraint
    • choices made will determine demand for each category
  4. completeness
    consumer can rank alternative bundles according to the utility they provide
  5. Tansitivity
    consumers are consistent
  6. Monotonicity
    consumers prefer more utility to less
  7. Diminishing marginal rate of substitution
    as a consumer consumes more units, they gain less utility
  8. Indifference curves
    • a way of representing tastes
    • all points on the same curve yield the same utility
    • cannot cross eachother
    • slope downward
  9. going outside the indifference curv would
    terminate tansitivity
  10. Consumers make purchase decions where the budget line is...
    tanget to indefference curve
  11. The exact bundle chosen by a consumer is given by....
    the point on an indifference curve that is tangent to the budget constraint line
  12. Suggests that marketing programs can be designed assuming consumers...
    • maximize utility
    • behave rationally
  13. Rationality assumptions
    • completeness
    • transitivity
    • monotonicity
  14. Normative
    • how one should
    • utility theory
  15. prescriptive
    how one could
  16. descriptive
    what one actually does