Consumer Choice and Demand

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Consumer Choice and Demand Chapter 19
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Definitions

• Consumer Taste
• A consumers preference for different goods and
  services
• Utility- the satisfaction a consumer derives from
  a product
• Marginal Utility- the satisfaction from deriving
  one more unit of a good
• Law of Diminishing Return- the more of a good
  consumer, the less increase in total utility

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Exhibit 1 Utility You Derive from Water After
Jogging Four Miles
Units of Water Consumed(8-ounce glass) Total
Utility Marginal Utility 0 0 1 40 40 2 60
20 3 70 10 4 75 5 5 73 2
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Exhibit 2a Total Utility You Derive from Water
After Jogging Four Miles
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Oddities

• Water availability vs Diamonds relative to price
• Water availability relative to bottled water

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Utility

• Is a function of
• Tastes
• Prices
• Your income

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Exhibit 2b Marginal Utility You Derive from
Water After Jogging Four Miles
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Not available here

• Review Exhibit 3
• Review Exhibit 4
• Review Exhibit 5

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Exhibit 5 Demand for Pizza Generated from
Marginal Utility
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Exhibit 6 Consumer Surplus from Subway
Sandwiches
The difference between what the Consumer pays,
and what they Were wiling to pay is called
the Consumer Surplus
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Exhibit 7a Summing Individual Demands to Derive
the Market Demand for Subway Sandwiches
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Exhibit 7b Summing Individual Demands to Derive
the Market Demand for Subway Sandwiches
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Exhibit 8 Market Demand and Consumer Surplus
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The Effect of Time

• Each good has a time price
• Each good has a money price
• Your willingness to pay a premium on a good for
  time savings reflects an opportunity cost of your
  time
• Differences in opportunity costs also affect
  consumption patterns.

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Exhibit 9 An Indifference Curve
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Exhibit 10 An Indifference Map
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Exhibit 11 Indifference Curves Do Not Intersect

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Exhibit 12 A Budget Line
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Exhibit 13 Utility Maximization
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Exhibit 14 Effect of a Drop in the Price of
Pizza
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Exhibit 15 Substitution and Income Effects of a
Drop in the Price of Pizza from 8 to 4