EC101 9
.docx
School
Boston University**We aren't endorsed by this school
Course
CAS EC EC101
Subject
Economics
Date
Dec 18, 2024
Pages
1
Uploaded by AmbassadorTitanium15958
EC101 Lecture 9Consumer ChoiceI.How do consumers decide what to purchase?A.Partly a question of economics1.Budgets2.Prices 3.Needs 4.WantsB.Partly a question of psychology1.Feeling 2.Hopes/desires3.Temptation C.Marketers understand this very wellII.Behavioral economics A.Incorporates economics and psychology B.We will use traditional economic models with “rational, self-interested con-sumers” III.Classical model of consumer choice A.People consume to get satisfaction or utility B.Different quantities of goods/services provide different art of utility C.Rational people want most utility within constraints of their income/wealth IV. Maximizing utilityA.Consumer has a fixed income that she can spendB.If she wants to maximize utility, she must think “at the margin”C.Budgets her spending in order of importance1.First: food/shelter 2.Second: comfort3.Remaining: luxuries D.Same idea applies to additional units of same good1.First units are applied to most important uses2.Subsequent units increase comfort3.Additional units are often a luxury 4.More can make you worse offV.Utility and willingness to pay A.Marginal utility that a consumer receives from one unit of good is hard to measureB.MU is a measure of satisfaction (psychology) C.Consumers are willing to pay for a good because of the utility/welfare it cre-atesD.Willingness to pay: max amt consumer is willing to pay for a good/service 1.Monetary measure of utility/welfare2.Economists like wtp because you can compute wtp from marketplace dataVI. Consumer surplus (CS) is the monetary value of the benefit remaining to the consumer after the price (an opportunity cost) is paid A.CS = WTP (willingness to pay) - P (price)B.Consumer surplus of voluntary purchase will not be negative1.Consumer would not buy a good that would give negative surplus2.Unless he was behaving irrationally or had poor info
