KINH TẾ VI MÔ Chapter 4 for student

CHAPTER THEORY ON CONSUMER’S BEHAVIOR Content Theory on consumer’s utility The principle of diminishing marginal utility Consumer’s surplus Consumer’s preferences Budget constraint Utility maximizing choice I Theory on consumer’s utility Some definitions 1.1 Utility (U) - The benefit or satisfaction that a person gets from the consumption of a good or service An abstract concept Unit – free Subjectivity (depends on consumer’s perception) I Theory on consumer’s utility Some definitions 1.2 Total utility (TU) - - The total benefit or satisfaction that a person gets from the consumption of goods and services Depends on the person’s level of consumption – more consumption generally gives more total utility I Theory on consumer’s utility Some definitions 1.3 Marginal utility (MU) - The change in total utility resulting from a one-unit increase in the quantity of a good consumed I Theory on consumer’s utility The principle of diminishing marginal utility - In a certain time period, continuous consumption will tend to the increase in total utility but a decrease in marginal utility * Application I Theory on consumer’s utility Consumer’s surplus (CS) - The difference between P the market price and the price buyer is willing to pay CS P* - The area below demand curve and above the market price line Q II Theory on consumer’s choice Consumer’s preferences - Some assumptions: + Preferences not depend on good’s price or income + People can sort all the possible combinations of goods they might consume into groups: preferred, not preferred and indifferent + Consumers prefer more to less + Consumer’s preference is transitivity II Theory on consumer’s choice Consumer’s preferences A B C D II Theory on consumer’s choice Consumer’s preferences Movie Indifference curve: shows the various combinations of consumption quantities that lead to the same level of well-being or happiness Better A C I2 B I1 Food II Theory on consumer’s choice Consumer’s preferences Indifference curve’s characteristics − - Downward sloping, the closer to the right hand-side, the higher utility consumer can gain Never intersect ∆X.MUx + ∆Y.MUy = → -MUx / MUy = ∆Y / ∆X → -MUx / MUy : the slope of Indifference curve = The marginal rate of substitution (MRS) II Theory on consumer’s choice Consumer’s preferences MRS: Y A B C D X II Theory on consumer’s choice MRS reveals consumer’s preference toward good and service Y Y X X II Theory on consumer’s choice *Special indifference curve Perfect substitute goods II Theory on consumer’s choice *Special indifference curve Perfect Complement goods II Theory on consumer’s choice Budget constraint - Budget line (BL): shows the various combinations of consumption that consumer can get from the available income Movie I=PX.QX+PY.QY (Y) C => QY= I/PY – (PX/PY).QX A => PX/PY : the slope of budget constraint or price line B Area C: can not afford D Area D: Inefficient Food (X) II Theory on consumer’s choice Budget constraint - I, PX= const, PY changes Y PY decreases: PY increases: BL1 X II Theory on consumer’s choice Budget constraint - I, PY= const, PX changes Y PX decreases: PX increases: BL1 X II Theory on consumer’s choice Budget constraint - PX, PY= const, I changes Y I increases: I decreases: BL1 X II Theory on consumer’s choice Optimal consumption combination Y A C D I3 B I2 I1 X 10 II Theory on consumer’s choice Utility maximizing choice - At point C, the indifference curve’ slope is equal to the budget line’s slope - In case of many goods and services: Chapter 4: Review A consumer decides to spend his income of 200$ on X and Y a PX = 4$, PY = 2$ Draw this consumer’s budget line b Due to the decrease in quantity supplied, Y’s price goes up to 4$ Draw new budget line c There is a promotion from the seller Buying 20 units of Y at price of 2$, consumer will get 10 units more free of charge This is applied on the first 20 units of Y only The following units are still applied the price of 2$ (except the bonus) Draw new budget line 11 ... budget line’s slope - In case of many goods and services: Chapter 4: Review A consumer decides to spend his income of 200$ on X and Y a PX = 4$ , PY = 2$ Draw this consumer’s budget line b Due... + Consumer’s preference is transitivity II Theory on consumer’s choice Consumer’s preferences A B C D II Theory on consumer’s choice Consumer’s preferences Movie Indifference curve: shows the... get from the available income Movie I=PX.QX+PY.QY (Y) C => QY= I/PY – (PX/PY).QX A => PX/PY : the slope of budget constraint or price line B Area C: can not afford D Area D: Inefficient Food