Economics
Consumer Choice
Consumer choice refers to the decision-making process through which individuals select from a range of goods and services based on their preferences, budget constraints, and utility maximization. It is a fundamental concept in economics that explores how consumers allocate their limited resources to maximize satisfaction and achieve the highest level of utility.
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12 Key excerpts on "Consumer Choice"
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
Introduction to Consumer Choices In this chapter, you will learn about: Chapter 6 | Consumer Choices 133 • Consumption Choices • How Changes in Income and Prices Affect Consumption Choices • How Consumer Choices Might Not Always be Rational Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that we can analyze individuals’ decisions, such as what goods and services to buy, as choices we make within certain budget constraints. Generally, consumers are trying to get the most for their limited budget. In economic terms they are trying to maximize total utility, or satisfaction, given their budget constraint. Everyone has their own personal tastes and preferences. The French say: Chacun à son goût, or “Each to his own taste.” An old Latin saying states, De gustibus non est disputandum or “There’s no disputing about taste.” If people base their decisions on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make? An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. However, economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live. This chapter introduces the economic theory of how consumers make choices about what goods and services to buy with their limited income. The analysis in this chapter will build on the budget constraint that we introduced in the Choice in a World of Scarcity chapter. This chapter will also illustrate how economic theory provides a tool to systematically look at the full range of possible consumption choices to predict how consumption responds to changes in prices or incomes.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2015(Publication Date)
- Openstax(Publisher)
Introduction to Consumer Choices In this chapter, you will learn about: Chapter 6 | Consumer Choices 127 • Consumption Choices • How Changes in Income and Prices Affect Consumption Choices • Labor-Leisure Choices • Intertemporal Choices in Financial Capital Markets Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that individuals’ decisions, such as what goods and services to buy, can be analyzed as choices made within certain budget constraints. Generally, consumers are trying to get the most for their limited budget. In economic terms they are trying to maximize total utility, or satisfaction, given their budget constraint. Everyone has their own personal tastes and preferences. The French say: Chacun à son goût, or “Each to his own taste.” An old Latin saying states, De gustibus non est disputandum or “There’s no disputing about taste.” If people’s decisions are based on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make? An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. But economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live. This chapter introduces the economic theory of how consumers make choices about what to buy, how much to work, and how much to save. The analysis in this chapter will build on the three budget constraints introduced in the Choice in a World of Scarcity chapter. These were the consumption choice budget constraint, the labor-leisure budget constraint, and the intertemporal budget constraint.
eBook - PDF- Steven A. Greenlaw, David Shapiro, Daniel MacDonald(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
For instance, do changes in prices matter more or less than changes in a consumer’s income? Can a small change in circumstances alter the consumers’ perception of a product or even of their own resources? While many choices may seem straightforward, there is often much more to consider. Microeconomics seeks to understand the behavior of individual economic agents such as individuals and businesses. Economists believe that we can analyze individuals’ decisions, such as what goods and services to buy, as choices we make within certain budget constraints. Generally, consumers are trying to get the most for their limited budget. In economic terms they are trying to maximize total utility, or satisfaction, given their budget constraint. Everyone has their own personal tastes and preferences. The French say: Chacun à son goût, or “Each to his own taste.” An old Latin saying states, De gustibus non est disputandum or “There’s no disputing about taste.” If people base their decisions on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make? An economic explanation for why people make different choices begins with accepting the proverbial wisdom that tastes are a matter of personal preference. However, economists also believe that the choices people make are influenced by their incomes, by the prices of goods and services they consume, and by factors like where they live. This chapter introduces the economic theory of how consumers make choices about what goods and services to buy with their limited income. The analysis in this chapter will build on the budget constraint that we introduced in the Choice in a World of Scarcity chapter. This chapter will also illustrate how economic theory provides a tool to systematically look at the full range of possible consumption choices to predict how consumption responds to changes in prices or incomes.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
Furthermore, it can shed light on the school choice debate and whether vouchers that can be used to help underwrite the education of a child at a school of a family’s choosing enhance household well-being relative to the his- torical model of public provision of a particular school in each family’s district. Learning Objectives • Develop an approach for analyzing consumer preferences. • Explain how a consumer’s income and the prices that must be paid for various goods limit consumption choices. • Describe how the market basket chosen by a consumer reflects both the consumer’s prefer- ences and the budget constraints imposed on the consumer by income and the prices that must be paid for various goods. • Determine how changes in income affect consumption choices. • Explain how altruism can be explained by the theory of Consumer Choice. • Relate the utility approach to the indifference curve method of analyzing Consumer Choice. • *Explain the mathematics behind Consumer Choice. • Consumer Preferences 43 Economists also have extended Consumer Choice theory to individuals’ decisions concerning labor supply, saving and investment, charitable contributions, voting, and even marriage. Indeed, some believe it provides the basis for a general theory of all human choices, not just Consumer Choices among goods in the marketplace. Several applications will be examined later in Chapter 5, but first we develop the theory fully as it pertains to the simple choices, among goods, made by a consumer. The basic model focuses on two important factors influencing consumer behavior. First is the consumers’ preferences, or tastes, over various combinations of goods. Second is the ability of consumers to acquire goods as determined by income and the prices of the goods.
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
7Consumer ChoicesPlate 7.1 Consumer ChoicesSynopsis
In a market economy, consumers are the driving force behind all production decisions, since successful business firms “give consumers what they want.” This chapter enhances the understanding of how consumers decide what to purchase. Economists consider consumers to be rational, or purposeful and consistent. This assumption allows economists to predict and explain Consumer Choices. In particular, they are able to make strong predictions about how consumers respond to changes in income and relative prices. The law of diminishing marginal utility explains why consumers prefer variety. Real-world examples include meat consumption in the US and China, and the diamond-water paradox.7.0 Introduction
The circular flow diagram in Chapter 1 summarized an economy composed of two groups: producers and consumers (see Figure 1.1 ). The next several chapters of this book explained the profit-maximizing behavior of producers. Very little was said about consumers. That leaves the question, “What role do consumers play in a market economy?” Consumers spend their incomes on the goods and services produced by firms. In a market economy, consumers are the driving force behind all production decisions, since producers will give consumers what they want by responding to relative prices. This chapter explains the behavior of consumers, and the following chapters explain the interactions between producers and consumers in domestic and international markets. The lessons begin with a study of rational behavior: the consumers’ counterpart of profit maximization.7.1 Rational behavior
Economic logic assumes that all human behavior is purposeful and consistent. The term Rational Behavior
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2020(Publication Date)
- Routledge(Publisher)
Chapter 7 Consumer ChoicesPhoto 7.1 Consumer ChoicesSource: studio online/ShutterstockAbstract
In a market economy, consumers are the driving force behind all production decisions, since successful business firms “give consumers what they want.” This chapter enhances the understanding of how consumers decide what to purchase. Economists consider consumers to be rational, or purposeful and consistent. This assumption allows economists to predict and explain Consumer Choices. In particular, they are able to make strong predictions about how consumers respond to changes in income and relative prices. The law of diminishing marginal utility explains why consumers prefer variety. Real-world examples include meat consumption in the US and China and the diamond–water paradox.7.0 Introduction
The circular flow diagram in Chapter 1 summarized an economy composed of two groups: producers and consumers. Chapters 2 through 6 explained the profit-maximizing behavior of producers. This chapter answers the question: what role do consumers play in a market economy? Consumers spend their incomes on the goods and services produced by firms. In a market economy, consumers are the driving forces behind all production decisions, since producers will give consumers what they want by responding to relative prices. This chapter explains the behavior of consumers, and the following chapters explain the interactions between producers and consumers in domestic and international markets. The lessons begin with a study of rational behavior: the consumers’ counterpart of profit maximization.7.1 Rational behavior
Economic logic assumes that all human behavior is purposeful and consistent. The term “rational behavior
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
Note that to the grandmother the mince pies are unlikely to be free. Few commodities in life are free goods, that is, they are so plentiful in relation to the wants for them that no allocation is necessary and so they do not have a price, e.g. fresh air and salt water. Most commodities are economically scarce and are therefore priced. The acquisition of them by a consumer is at some cost, and he consequently has to choose how to spend his limited funds in the ways to give him most satisfaction. This is, of course, a typical economic problem of allocating a scarce resource (purchasing power) between alternative uses (the range of goods and services open to the consumer) in pursuit of a given objective (to maximise his satisfaction). Economists attempt to explain how consumers do this using Theories of Consumer Choice. Theories of Consumer Choice The consumer is of fundamental interest to the economist because it is to satisfy the demands of consumers that production takes place. Paradoxically, the objectives which lie behind the behaviour of consumers and the choices they make are among the most elusive because they are complex and for the most part unmeasurable. In the face of these difficul-ties economists have developed several theories to explain consumer behaviour, two of which will be described here — firstly utility theory and secondly indifference theory. Both make the reasonable assumption that the objective the consumer has in mind is to get the greatest amount of satisfaction possible from the limited amount of purchasing power he possesses. We begin with utility theory which, while simple in concept, contains some difficulties which the second approach, using indifference curve analysis, overcomes.
eBook - ePubMicroeconomic Foundations I
Choice and Competitive Markets
- David M. Kreps(Author)
- 2012(Publication Date)
- Princeton University Press(Publisher)
Chapter OneChoice, Preference, and Utility
Most people, when they think about microeconomics, think first about the slogan supply equals demand and its picture, shown here in Figure 1.1 , with a rising supply function intersecting a falling demand function, determining an equilibrium price and quantity.Figure 1.1. Supply equals demandBut before getting to this picture and the concept of an equilibrium, the picture’s constituent pieces, the demand and supply functions, are needed. Those functions arise from choices, choices by firms and by individual consumers. Hence, microeconomic theory begins with choices. Indeed, the theory not only begins with choices; it remains focused on them for a very long time. Most of this volume concerns modeling the choices of consumers, with some attention paid to the choices of profit-maximizing firms; only toward the end do we seriously worry about equilibrium.1.1. Consumer Choice: The Basics
The basic story of Consumer Choice is easily told: Begin with a set X of possible objects that might be chosen and an individual, the consumer, who does the choosing. The consumer faces limits on what she might choose, and so we imagine some collection A of nonempty subsets of X from which the consumer might choose. We let A denote a typical element of A; that is, A is a subset of X. Then the choices of our consumer are denoted by c(A).The story is that the consumer chooses one element of A. Nonetheless, we think of c(A) as a subset of A, not a member or element of A. This allows for the possibility that the consumer is happy with any one of several elements of A, in which case c(A) lists all those elements. When she makes a definite choice of a single element, say x, out of A—when she says, in effect, “I want x and nothing else”—we write c(A) = {x}, or the singleton set consisting of the single element x. But if she says, “I would be happy with either x or y,” then c(A) = {x, y}.So far, no restrictions have been put on c(A). But some restrictions are natural. For instance, c(A) ⊆ A seems obvious; we do not want to give the consumer a choice out of A and have her choosing something that is not in A. You might think that we would insist on c(A) ≠ ; that is, the consumer makes some choice. But we do not insist on this, at least, not yet. Therefore…
eBook - PDFMicroeconomics
Private and Public Choice
- James Gwartney, Richard Stroup, Russell Sobel, David Macpherson(Authors)
- 2017(Publication Date)
- Cengage Learning EMEA(Publisher)
P A R T 3 Core Microeconomics Consumers are the ultimate judge of both prod- ucts and business firms. Their choices determine which survive and which fail. The competitive process is highly dynamic. Numerous businesses come and go. Each year, newly incorporated businesses account for approximately 10 percent of the total. However, about 60 percent of the new businesses will fail within the first six years. Microeconomics analyzes the dynamic interaction among consumers, business firms, and resource suppliers, and how it affects the quality of our lives. Microeconomics focuses on the choices of consumers, the operation of firms, the structure of markets, and the choices of resource suppliers and employers. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 F O C U S • What are the fundamental postulates underlying Consumer Choice? • How does the law of diminishing marginal utility help explain the law of demand? • How do the demand curves of individuals translate into a market demand curve? • What is demand elasticity? What does it measure? Why is it important? The most famous law in economics, and the one economists are most sure of, is the law of demand. On this law is built almost the whole edifice of economics. —David R. Henderson 1 A thing is worth whatever a buyer will pay for it. —Publilius Syrus, first century B.C. 2 1 David R. Henderson, “Demand,” in The Concise Encyclopedia of Economics, ed. David R. Henderson (http://www.econlib.org/library/CEE.html). 2 Quoted in Michael Jackman, ed., Macmillan Book of Business and Economic Quotations (New York: Macmillan, 1984), 150. Consumer Choice and Elasticity Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-300 133 The statement of David Henderson highlights the central position of the law of demand in economics.
eBook - PDF- William Boyes, Michael Melvin(Authors)
- 2015(Publication Date)
- Cengage Learning EMEA(Publisher)
top: ª Carsten Reisinger/Shutterstock CHAPTER 21 Demand: Consumer Choice Preview In previous chapters, we learned that demand measures the quantity of a good or serv-ice that people are willing and able to buy at various prices. In the previous chapter, we also learned how the consumer’s reaction to price changes and changes to the consum-er’s income affect demand. In this chapter, we go behind the scenes of demand. We examine how and why consumers make choices and what factors influence their choices. We even look briefly into their brains— what parts of the brain they use to make decisions and how that makes a difference in their behavior. FUNDAMENTAL QUESTIONS 1. How do consumers decide what to buy? 2. Why does the demand curve slope down? 3. What are behavioral economics and neuroeconomics? ª karelnoppe/Shutterstock.com 455 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 21-1 Decisions Do we go to college or get a job? Do we get married or remain single? Do we live in the dorm, a house, or an apartment? “Decisions, decisions, decisions! Don’t we ever get a break from the pressure of making choices?” Not unless scarcity disappears will we be freed from having to make choices. Although scarcity and choice are pervasive, how people make decisions is a question that has eluded scientific explanation. Some decisions seem to be based on feelings, or to come from the heart, while others seem more calculated. Some are quick and impulsive, while others take months or years of research.
- Roberto Serrano, Allan M. Feldman(Authors)
- 2018(Publication Date)
- Cambridge University Press(Publisher)
Part I Theory of the Consumer 2 Preferences and Utility 2.1 Introduction Life is like a shopping center. The consumer enters it and sees lots of goods, in various quantities, that she might buy. A consumption bundle , or a bundle for short, is a combination of quantities of the various goods (and services) that are available. For instance, a consumption bundle might be 2 apples, 1 banana, 0 cookies, and 5 diet sodas. We would write this as ( 2, 1, 0, 5 ) . Of course, the consumer prefers some consumption bundles to others; that is, she has tastes or preferences regarding those bundles. In this chapter, we will discuss the economic theory of preferences in some detail. We will make various assumptions about a consumer’s feelings about alternative consumption bundles. We will assume that when given a choice between two alter-native bundles, the consumer can make a comparison. (This assumption is called completeness .) We will assume that when looking at three alternatives, the consumer is rational in the sense that, if she says she likes the first better than the second and the second better than the third, she will also say that she likes the first better than the third. (This is part of what is called transitivity .) We will examine other basic assumptions that economists usually make about a consumer’s preferences: one says that the consumer prefers more of each good to less (called monotonicity ), and another says that a consumer’s indifference curves (or sets of equally desirable consumption bundles) have a certain plausible curvature (called convexity ). We will describe and discuss the consumer’s rate of tradeoff of one good against another (called her marginal rate of substitution ). After discussing the consumer’s preferences, we will turn to her utility function .
- Morris Altman(Author)
- 2020(Publication Date)
- Academic Press(Publisher)
Chapter 6How consumers can achieve freedom of choice: When consumers are truly sovereign
Abstract
In contrast with the conventional perspective on choice behaviour, a model of preference formation is developed of rational or intelligent utility maximizing agents wherein they can possess preferences that are objectively suboptimal from both an individual and social perspective. In other words, one should not assume consumer sovereignty as a given. In addition, the revealed preferences of agents might be optimal from the perspective of the individual agents, but might conflict with the preferences of other agents. With optimal but heterogeneous preferences, based on issues of gender or class, for example, moral and political dilemmas might arise with respect to resolving such optimal but conflicting preferences. Thus, the revealed preferences of agents cannot be deemed, necessarily, as an indicator of what is in the best interest of the agent and of society at large. For optimal preferences to be constructed and chosen requires an appropriate institutional setting. Moreover, the extent to which preferences are optimal affects the relative efficiency of the economy. Understanding how optimal preferences are constructed and realized is thus critically important from an analytical and from both an individual and social welfare perspective.
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