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Chapter 5
Customers use many products that give them pleasure or satisfaction. Utility refers to the measure of satisfaction or well-being that a consumer derives ...
Consider a girl riding her motorcycle under the hot sun, feeling thirsty. Spotting a gas station, she buys a bottle of water. This first bottle of water ...
Total utility, or TU, is the overall satisfaction with the consumption of all units of a product. Consider the utility that John gets from eating pizzas ...
Consumer preferences are based on a few assumptions that help simplify consumer behavior. A market basket or a bundle refers to a combination of goods and ...
The study of consumer behavior is based on a few assumptions regarding consumer preferences. The assumption of transitivity means that a customer's ...
An indifference curve is a graphical representation of a consumer's preferences. A consumer is indifferent among different combinations of two ...
Nancy loves coffee and sandwiches. Her preferences for various combinations of coffee and sandwiches consumed weekly are represented in IC1. It gives her ...
Suppose indifference curve IC1 represents John's preferences for weekly consumption of goods X and Y. Now imagine another indifference curve IC2, ...
The marginal rate of substitution, or MRS, is the rate at which a consumer is ready to give up one product in exchange for another while maintaining the ...
Marginal Rate of Substitution, or MRS, measures the amount of one good that a consumer can sacrifice in order to gain an additional unit of another good ...
Indifference curves are usually convex to the origin due to the diminishing marginal rate of substitution. However, the shape of indifference curves ...
Budget constraint helps to describe the combinations of products a consumer can afford to buy with their limited income. For instance, a student receives ...
The slope of the budget constraint represents the rate at which a consumer can trade one product for another. For example, a student spends his weekly ...
A Budget constraint or budget line represents the various combinations of two products a consumer can purchase, given their income and the prices of ...
A budget constraint or budget line is affected by a change in the income of the consumer. For instance, a student receives a weekly allowance of $100 that ...
Consumer choice involves selecting a combination of products as a market basket, or a product bundle. The chosen bundle should provide the highest level ...
Consumer choice involves selecting a bundle that provides the highest level of satisfaction to the consumer under the constraints of their budget. The ...
The optimal bundle that gives maximum satisfaction to a consumer lies at the point where the budget line touches the highest possible indifference curve. ...
When the price of a product changes, it affects the consumption behavior of the consumer. This change in consumption is called the price effect or the ...
When the price of a product changes, it affects the consumption behavior of the consumer. This change in consumption is called the total effect, which is ...
When the price of a good changes, the consumer purchases a different optimal bundle of the two goods in response to the price change. Each time the price ...
The price consumption curve shows how the optimal bundle changes with the change in prices of one good. For example, the student changed their purchase of ...
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