微观经济管理学与财务知识分析规划.pptx

Chapter 3Consumer Behavior1Chapter 1Topics to be DiscussednConsumer PreferencesnBudget ConstraintsnConsumer ChoicenRevealed Preferences2Chapter 1Topics to be DiscussednMarginal Utility and Consumer ChoicesnCost-of-Living Indexes3Chapter 1Consumer BehaviornTwo applications that illustrate the importance of the economic theory of consumer behavior are:lApple-Cinnamon CheerioslThe Food Stamp Program.4Chapter 1Consumer BehaviornGeneral Mills had to determine how high a price to charge for Apple-Cinnamon Cheerios before it went to the market.5Chapter 1Consumer BehaviornWhen the food stamp program was established in the early 1960s, the designers had to determine to what extent the food stamps would provide people with more food and not just simply subsidize the food they would have bought anyway.6Chapter 1Consumer BehaviornThese two problems require an understanding of the economic theory of consumer behavior.7Chapter 1Consumer BehaviornThere are three steps involved in the study of consumer behavior.1) We will study consumer preferences.uTo describe how and why people prefer one good to another.8Chapter 1Consumer BehaviornThere are three steps involved in the study of consumer behavior.2) Then we will turn to budget constraints.uPeople have limited incomes.9Chapter 1Consumer BehaviornThere are three steps involved in the study of consumer behavior.3) Finally, we will combine consumer preferences and budget constraints to determine consumer choices.uWhat combination of goods will consumers buy to maximize their satisfaction?10Chapter 1Consumer PreferencesnA market basket is a collection of one or more commodities.nOne market basket may be preferred over another market basket containing a different combination of goods.Market Baskets11Chapter 1Consumer PreferencesnThree Basic Assumptions 1) Preferences are complete.2) Preferences are transitive.3) Consumers always prefer more of any good to less.Market Baskets12Chapter 1Consumer PreferencesA2030B1050D4020E3040G1020H1040Market BasketUnits of Food Units of Clothing13Chapter 1Consumer PreferencesnIndifference curves represent all combinations of market baskets that provide the same level of satisfaction to a person.Indifference Curves14Chapter 1The consumer prefersA to all combinationsin the blue box, whileall those in the pinkbox are preferred to A.Consumer PreferencesFood(units per week)1020304010203040Clothing(units per week)50GAEHBD15Chapter 1U1Combination B,A, & Dyield the same satisfactionE is preferred to U1U1 is preferred to H & GConsumer PreferencesFood(units per week)1020304010203040Clothing(units per week)50GDAEHB16Chapter 1Consumer PreferencesnIndifference CurveslIndifference curves slope downward to the right.uIf it sloped upward it would violate the assumption that more of any commodity is preferred to less.17Chapter 1Consumer PreferencesnIndifference CurveslAny market basket lying above and to the right of an indifference curve is preferred to any market basket that lies on the indifference curve.18Chapter 1Consumer PreferencesnAn indifference map is a set of indifference curves that describes a persons preferences for all combinations of two commodities.lEach indifference curve in the map shows the market baskets among which the person is indifferent.Indifference Maps19Chapter 1Consumer PreferencesnIndifference CurveslFinally, indifference curves cannot cross.uThis would violate the assumption that more is preferred to less.20Chapter 1U2U3Consumer PreferencesFood(units per week)Clothing(units per week)U1ABDMarket basket Ais preferred to B.Market basket B ispreferred to D.21Chapter 1U1U2Consumer PreferencesFood(units per week)Clothing(units per week)ADBThe consumer shouldbe indifferent betweenA, B and D. However,B contains more ofboth goods than D.Indifference CurvesCannot Cross22Chapter 1ABDEG-1-611-4-211Observation: The amountof clothing given up for a unit of food decreasesfrom 6 to 1Consumer PreferencesFood(units per week)Clothing(units per week)23451246810121416Question: Does thisrelation hold for givingup food to get clothing?23Chapter 1Consumer PreferencesnThe marginal rate of substitution (MRS) quantifies the amount of one good a consumer will give up to obtain more of another good.lIt is measured by the slope of the indifference curve.Marginal Rate of Substitution24Chapter 1Consumer PreferencesFood(units per week)Clothing(units per week)23451246810121416ABDEG-61111-4-2-1MRS = 6MRS = 2FCMRS25Chapter 1Consumer PreferencesnWe will now add a fourth assumption regarding consumer preference:lAlong an indifference curve there is a diminishing marginal rate of substitution.uNote the MRS for AB was 6, while that for DE was 2.Marginal Rate of Substitution26Chapter 1Consumer PreferencesnQuestionlWhat are the first three assumptions?Marginal Rate of Substitution27Chapter 1Consumer PreferencesnIndifference curves are convex because as more of one good is consumed, a consumer would prefer to give up fewer units of a second good to get additional units of the first one.nConsumers prefer a balanced market basketMarginal Rate of Substitution28Chapter 1Consumer PreferencesnPerfect Substitutes and Perfect ComplementslTwo goods are perfect substitutes when the marginal rate of substitution of one good for the other is constant.Marginal Rate of Substitution29Chapter 1Consumer PreferencesnPerfect Substitutes and Perfect ComplementslTwo goods are perfect complements when the indifference curves for the goods are shaped as right angles.Marginal Rate of Substitution30Chapter 1Consumer PreferencesOrange Juice(glasses)Apple Juice(glasses)234112340PerfectSubstitutes31Chapter 1Consumer PreferencesRight ShoesLeftShoes234112340PerfectComplements32Chapter 1Consumer PreferencesnBADSlThings for which less is preferred to morenExampleslAir pollutionlAsbestos33Chapter 1Consumer PreferencesnWhat Do You Think?lHow can we account for Bads in the analysis of consumer preferences?34Chapter 1Consumer PreferencesnAutomobile executives must regularly decide when to introduce new models and how much money to invest in restyling.Designing New Automobiles (I)35Chapter 1Consumer PreferencesnAn analysis of consumer preferences would help to determine when and if car companies should change the styling of their cars.Designing New Automobiles (I)36Chapter 1Consumer PreferencesThese consumers arewilling to give up considerablestyling for additionalperformanceStylingPerformanceConsumerPreference A:High MRS37Chapter 1Consumer PreferencesThese consumers arewilling to give upconsiderableperformance for additional stylingStylingPerformanceConsumerPreference B:Low MRS38Chapter 1Consumer PreferencesnWhat Do You Think?lHow can we determine the consumers preference?Designing New Automobiles (I)39Chapter 1Consumer PreferencesnA recent study of automobile demand in the United States shows that over the past two decades most consumers have preferred styling over performance.Designing New Automobiles (I)40Chapter 1Consumer PreferencesnGrowth of Japanese Importsl1970s and 1980su15% of domestic cars underwent a style change each yearuThis compares to 23% for importsDesigning New Automobiles (I)41Chapter 1Consumer PreferencesnUtilitylUtility: Numerical score representing the satisfaction that a consumer gets from a given market basket.42Chapter 1Consumer PreferencesnUtilitylIf buying 3 copies of Microeconomics makes you happier than buying one shirt, then we say that the books give you more utility than the shirt.43Chapter 1Consumer PreferencesnUtility FunctionslAssume:The utility function for food (F) and clothing (C) U(F,C) = F + 2C Market Baskets: F units C units U(F,C) = F + 2C A 8 3 8 + 2(3) = 14 B 6 4 6 + 2(4) = 14 C 4 4 4 + 2(4) = 12 The consumer is indifferent to A & B The consumer prefers A & B to C44Chapter 1Consumer PreferencesFood(units per week)10155510150Clothing(unitsper week)U1 = 25U2 = 50 (Preferred to U1)U3 = 100 (Preferred to U2)ABCAssume: U = FCMarket Basket U = FCC 25 = 2.5(10)A 25 = 5(5)B 25 = 10(2.5)Utility Functions & Indifference Curves45Chapter 1Consumer PreferencesnOrdinal Versus Cardinal UtilitylOrdinal Utility Function: places market baskets in the order of most preferred to least preferred, but it does not indicate how much one market basket is preferred to another.lCardinal Utility Function: utility function describing the extent to which one market basket is preferred to another.46Chapter 1Consumer PreferencesnOrdinal Versus Cardinal RankingslThe actual unit of measurement for utility is not important.lTherefore, an ordinal ranking is sufficient to explain how most individual decisions are made.47Chapter 1Budget ConstraintsnPreferences do not explain all of consumer behavior.nBudget constraints also limit an individuals ability to consume in light of the prices they must pay for various goods and services.48Chapter 1Budget ConstraintsnThe Budget LinelThe budget line indicates all combinations of two commodities for which total money spent equals total income.49Chapter 1Budget ConstraintsnThe Budget LinelLet F equal the amount of food purchased, and C is the amount of clothing.lPrice of food = Pf and price of clothing = PclThen Pf F is the amount of money spent on food, and Pc C is the amount of money spent on clothing.50Chapter 1Budget ConstraintsnThe budget line then can be written:ICPFPCF51Chapter 1Budget ConstraintsA040$80B2030$80D4020$80E6010$80G800$80Market Basket Food (F) Clothing (C) Total SpendingPf = ($1)Pc = ($2)PfF + PcC = I52Chapter 1Budget Line F + 2C = $80CF/PPFC- 21- / Slope1020(I/PC) = 40Budget ConstraintsFood(units per week)406080 = (I/PF)201020300ABDEGClothing(unitsper week)Pc = $2 Pf = $1 I = $8053Chapter 1Budget ConstraintsnThe Budget LinelAs consumption moves along a budget line from the intercept, the consumer spends less on one item and more on the other.lThe slope of the line measures the relative cost of food and clothing.lThe slope is the negative of the ratio of the prices of the two goods.54Chapter 1Budget ConstraintsnThe Budget LinelThe slope indicates the rate at which the two goods can be substituted without changing the amount of money spent.55Chapter 1Budget ConstraintsnThe Budget LinelThe vertical intercept (I/PC), illustrates the maximum amount of C that can be purchased with income I.lThe horizontal intercept (I/PF), illustrates the maximum amount of F that can be purchased with income I.56Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslIncome ChangesuAn increase in income causes the budget line to shift outward, parallel to the original line (holding prices constant).57Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslIncome ChangesuA decrease in income causes the budget line to shift inward, parallel to the original line (holding prices constant).58Chapter 1Budget ConstraintsFood(units per week)Clothing(unitsper week)8012016040204060800A increase inincome shiftsthe budget lineoutward(I = $160)L2(I = $80)L1L3(I =$40)A decrease inincome shiftsthe budget lineinward59Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuIf the price of one good increases, the budget line shifts inward, pivoting from the other goods intercept.60Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuIf the price of one good decreases, the budget line shifts outward, pivoting from the other goods intercept.61Chapter 1Budget ConstraintsFood(units per week)Clothing(unitsper week)801201604040(PF = 1)L1An increase in theprice of food to$2.00 changesthe slope of thebudget line androtates it inward.L3(PF = 2)(PF = 1/2)L2A decrease in theprice of food to$.50 changesthe slope of thebudget line androtates it outward.62Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuIf the two goods increase in price, but the ratio of the two prices is unchanged, the slope will not change.63Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuHowever, the budget line will shift inward to a point parallel to the original budget line.64Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuIf the two goods decrease in price, but the ratio of the two prices is unchanged, the slope will not change.65Chapter 1Budget ConstraintsnThe Effects of Changes in Income and PriceslPrice ChangesuHowever, the budget line will shift outward to a point parallel to the original budget line.66Chapter 1Consumer ChoicenConsumers choose a combination of goods that will maximize the satisfaction they can achieve, given the limited budget available to them.67Chapter 1Consumer ChoicenThe maximizing market basket must satisfy two conditions:1) It must be located on the budget line.2) Must give the consumer the most preferred combination of goods and services.68Chapter 1Recall, the slope of an indifference curve is:Consumer ChoiceFCMRSCFPPSlopeFurther, the slope of the budget line is:69Chapter 1Consumer ChoicenTherefore, it can be said that satisfaction is maximized where: CFPPMRS 70Chapter 1Consumer ChoicenIt can be said that satisfaction is maximized when marginal rate of substitution (of F and C) is equal to the ratio of the prices (of F and C).71Chapter 1Consumer ChoiceFood (units per week)Clothing(units per week)4080202030400U1BBudget LinePc = $2 Pf = $1 I = $80Point B does not maximize satisfaction because theMRS (-(-10/10) = 1 is greater than the price ratio (1/2).-10C+10F72Chapter 1Consumer ChoiceBudget LineU3DMarket basket D cannot be attainedgiven the currentbudget constraint.Pc = $2 Pf = $1 I = $80Food (units per week)Clothing(units per week)408020203040073Chapter 1U2Consumer ChoicePc = $2 Pf = $1 I = $80Budget LineAAt market basket A the budget line and theindifference curve aretangent and no higherlevel of satisfaction can be attained.At A:MRS =Pf/Pc = .5Food (units per week)Clothing(units per week)408020203040074Chapter 1Consumer ChoicenConsider two groups of consumers, each wishing to spend $10,000 on the styling and performance of cars.nEach group has different preferences.Designing New Automobiles (II)75Chapter 1Consumer ChoicenBy finding the point of tangency between a groups indifference curve and the budget constraint auto companies can design a production and marketing plan.Designing New Automobiles (II)76Chapter 1Designing New Automobiles (II)StylingPerformance$10,000$10,000$3,000These consumersare willing to tradeoff a considerableamount of stylingfor some additionalperformance$7,00077Chapter 1Designing New Automobiles (II)Styling$10,000$10,000$3,000These consumersare willing to tradeoff a considerableamount of performance forsome additionalstyling$7,000Performance78Chapter 1Consumer ChoicenChoosing between a non-matching and matching grant to fund police expendituresDecision Making & Public Policy79Chapter 1Consumer ChoiceNon-matching GrantPoliceExpenditures ($)PrivateExpenditures ($)OPQU1ABefore Grant Budget line: PQA: Preference maximizing market basket ExpenditureOR: PrivateOS: PoliceRS80C