Microeconomics

Leeds, von Allmen and Schiming

Chapter 7, Consumer Behavior

1. Consumer Behavior

   1. Price includes monetary and non-monetary costs

   2. Needs versus wants

2. What you are able to do

   1. Budget constraints and lines

      1. Income effects

      2. Substitution effects

3. What you want to do

   1. Jeremy Bentham and the utilometer - Total utility - total benefit

   2. Marginal utility - marginal benefit

      1. Law of diminishing marginal utility

      2. Cost /benefit criterion

4. Getting the most for your money - The rational spending rule

   1. Marginal utility per dollar

   2. The rational spending rule

5. Examples

   1. Substitution - Why do the wealthy in Manhattan live in smaller houses than the wealthy in Seattle?

   2. Complements - How does the price of gas affect car selection?

   3. Income - Why are waiting lines longer in poorer neighborhoods?