Microeconomics 3
Consumer Behavior
Consumer Behavior
Set of flashcards Details
Flashcards | 20 |
---|---|
Language | English |
Category | Macro-Economics |
Level | University |
Created / Updated | 17.11.2012 / 13.03.2015 |
Licencing | No Copyright (CC0) |
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theory of consumer behavior
Description of how consumers allocate incomes among different goods and
services to maximize their well-being.
3 steps of consumer behavior
1. Consumer preferences
2. Budget constraints
3. Consumer choices
market basket
List with specific quantities
of one or more goods.
3 assumptions of consumer preferences
1. Completeness: Preferences are assumed to be complete. In other words, consumers can compare and rank all possible baskets. Thus, for any two market baskets A and B, a consumer will prefer A to B, will prefer B to A, or will be indifferent between the two. By indifferent we mean that a person will be equally satisfied with either basket.
2. Transitivity: Preferences are transitive. Transitivity means that if a consumer prefers basket A to basket B and basket B to basket C, then the consumer also prefers A to C. Transitivity is normally regarded as necessary for consumer consistency.
3. More is better than less: Goods are assumed to be
desirable—i.e., to be good. Consequently, consumers always
prefer more of any good to less. In addition, consumers are
never satisfied or satiated; more is always better, even if just a
little better.
indifference curve
Curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction.