6: Consumer Choices

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6.0: Introduction
This page explores consumer behavior, focusing on factors influencing spending decisions amid income and price changes. It analyzes economic theories of consumption, emphasizing budget constraints and personal preferences. The chapter illustrates how economic conditions can shift consumer spending, using trends from the Great Recession as evidence. It aims to offer insights into predicting consumer adaptations based on changing economic circumstances.
6.1: Consumption Choices
This page examines how economists assess consumer choices via total and marginal utility, highlighting spending trends from the 2015 Consumer Expenditure Survey. It illustrates how José optimizes his utility while respecting budget constraints, ultimately determining that one T-shirt and six movies yield maximum satisfaction.
6.2: How Changes in Income and Prices Affect Consumption Choices
This page explores how income and price changes influence consumer choices through budget constraints, utility, and marginal utility, distinguishing between the substitution and income effects. It illustrates these concepts with examples of normal and inferior goods while demonstrating how rising housing prices can pivot the budget constraint and reduce housing demand.
6.3: Behavioral Economics- An Alternative Framework for Consumer Choice
This page explores intertemporal choices by contrasting traditional economic models of rational decision-making with behavioral economics, emphasizing the impact of emotions and mental accounting on financial decisions. Key concepts include loss aversion and the tendency to favor immediate rewards.
6.4: Key Terms
This page explores behavioral economics, highlighting the psychological factors affecting decision-making in consumer behavior. It discusses key concepts like budget constraint, consumer equilibrium, diminishing marginal utility, and fungibility. The text illustrates how income and substitution effects from price changes influence purchasing power.
6.5: Key Concepts and Summary
This page discusses the economic analysis of household behavior, emphasizing that individuals aim to maximize utility through consumption, although marginal utility decreases with increased consumption. It outlines methods to identify utility-maximizing choices, such as budget constraints and the marginal utility-to-price ratio. The page also notes that income changes impact consumption patterns, boosting demand for normal goods while reducing demand for inferior ones.
6.6: Self-Check Questions
This page discusses Jeremy's love for Jasmine and his budget constraints regarding communication options. He has $10 weekly to choose between phone calls or driving. Using a utilimometer, he determines the utility-maximizing choice based on a table of total utility values. The text also covers the marginal utility approach, the impact of lower prices on purchasing behavior, and how missing monthly allowances can affect college students' budgeting and purchasing decisions.
6.7: Review Questions
This page discusses key economic concepts related to utility, including its determination, the effects of consumption on total and marginal utility, and the utility-maximization process. It explores how total utility can rise even with diminishing marginal utility, decision-making with incomplete information, the relationship between marginal utility and prices, and how price fluctuations influence demand. Additionally, it examines how changes in income alter budget constraints.
6.8: Critical Thinking Questions
This page reflects on recent purchases and critiques the disconnect between political and economic strategies in budgeting, particularly the misleading "closing the Washington Monument" tactic. It advocates for effective budget cuts that focus on items with the highest marginal utility instead of just visible ones. The discussion also includes income elasticity, highlighting that if one good is inferior with negative elasticity, other purchased goods must have positive income elasticity.
6.9: Problems
This page discusses Praxilla from ancient Greece, who evaluates the utility of poems and cucumbers based on her budget of 18 bronze coins. It explores her diminishing marginal utility for each item and analyzes her consumption choices through a created table. The content also raises a question about the potential demand response to a price decrease for these goods.

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