Chapter 6 - Consumer behaviour Flashcards Preview

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Flashcards in Chapter 6 - Consumer behaviour Deck (33)
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1

What motivates consumer

maximizing their utility

2

Utility def

Total satisfaction deriving from the goods and services consumed

3

Total utility def

Full satisfaction from the consumption of a product by a consumer

4

Marginal utility def

Additional satisfaction resulting from consuming one more unit of a product

5

Utility vs qt bought (consumed)

Utility of successive units of a product decreases as total consumption increases. MU falls as the level of consumption rises

6

shape of the utility ressembles which curve

shape of the demand curve

7

it terms of calculus, what is the marginal utility

slope of the total utility function

8

Theory of consumber behavior : individual demand shape and market demand shape

both negatively sloped

9

how consumers can maximize their utility

make sur that utility obtained from last dollar spent on each product is the same

10

2 ways of writing formula for maximal utility. What second one means

MUx/Px = MUy/Py or MUx/MUy = Px/Py

11

2 effects of a change in price

alters relative prices and changes consumer's real income

12

What is the substitution effect

effect that increases qt demanded of a good if relative price fell and reduces relative price of good if price increased

13

What is the income effect

price changed = my income changed
for a normal good, effect that leads consumers to buy more in price has fallen
for an inferior good, effect that leads consumers to buy less if price has fallen

14

Size of income effect what it depends on (2)

1) Amount of income spent on price changing product
2) How much price changed

15

Overall effect of price change on demand curve

Combination of substitution effect and income effect

16

what substitution effects tends to do on demand curve

increase qt demanded

17

what income effect tends to do on demand curve

increase qt demanded for a normal good. Decrease qt demanded for an inferior good

18

Normal good demand curve

Subs effect and income effect work in the same direction

19

Normal good demand curve : which is more important subs effect of income effect and why

Substitution effect. Income effect is small because the increase in purchasing power coming from income effect is low

20

Inferior good demand curve

Subs effect and income effect work in opposite directions but subs > income effect. steeper demand curve

21

Giffen good

Inferior good for which the demand curve is + sloped. income effect > subs effect

22

What is to remember about demand curves for normal, inferior and inferior Giffen good

Individual demand curves

23

Goods consumed for their snob appeal and status they confer -> why they do not violate theory of utility maximization ?

1) Consumers will buy more if price drops (as long as people think they paid the high price)
2) Very unlikely that the demand curve is positively sloped

24

On an individual demand curve, what is the surplus for a unit of product bought

for the q unit, the surplus is the price associated minus the price at which it's going to be bought

25

Utility vs surplus

Sum of prices we were willing to pay for each product q = utility. Sum of (prices we were willing to pay for each product q - price at which products were bought)

26

In general, what is the MU on the individual demand curve

Price of last unit bought (shows the value we give to this unit)

27

Value and utility

Synonyms (kind of)

28

2 ways of determining value placed by a consumer on total consumption of some product

1) Sum of valuations placed on each unit
2) How much consumer would pay if he was to buy all these units if alternative is none

29

What is the paradox of value

You can have invaluable goods at low prices (ex . water) and unneccesary goods at high prices (ex. diamonds)

30

Solution to paradox of value

Supply has to be taken into account -> will determine eq price