Elasticity of Consumer Goods

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Honors Economics-Mr. Doebbler-Chapter 6 Study Guide

Chapter6: Consumer Behavior
p. 116 AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: | 1 | Define and explain the relationship between total utility, marginal utility, and the law of diminishing marginal utility. | 2 | Describe how rational consumers maximize utility by comparing the marginal utility-to-price ratios of all the products they could possibly purchase. | 3 | Explain how a demand curve can be derived by observing the outcomes of price changes in the utility-maximization model. | 4 | Discuss how the utility-maximization model helps highlight the income and substitution effects of a price change. | 5 | Relate how behavioral economics and prospect theory shed light on many consumer behaviors. | 6 | (Appendix) Relate how the indifference curve model of consumer behavior derives demand curves from budget lines, indifference curves, and utility maximization. |

If you were to compare the shopping carts of almost any two consumers, you would observe striking differences. Why does Paula have potatoes, peaches, and Pepsi in her cart, while Sam has sugar, saltines, and 7-Up in his? Why didn't Paula also buy pasta and plums? Why didn't Sam have soup and spaghetti on his grocery list?
In this chapter, you will see how individual consumers allocate their incomes among the various goods and services available to them. Given a certain budget, how does a consumer decide which goods and services to buy? This chapter will develop a model to answer this question.
This chapter will also survey some of the recent insights about consumer behavior provided by the field of behavioral economics. These insights explain many of the less-rational and oftentimes quirky behaviors exhibited by consumers. Better yet, they also suggest concrete policies that individuals, companies, and governments can use to make…...

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