{"id":146,"date":"2016-12-27T22:57:27","date_gmt":"2016-12-28T03:57:27","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/?post_type=chapter&p=146"},"modified":"2017-02-18T21:06:06","modified_gmt":"2017-02-19T02:06:06","slug":"introduction-to-consumer-choices","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/chapter\/introduction-to-consumer-choices\/","title":{"raw":"Introduction to Consumer Choices","rendered":"Introduction to Consumer Choices"},"content":{"raw":"
<\/div>\r\n
\r\n
<\/div>\r\n
<\/figcaption>\r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"780\"]\"This Figure 1.<\/strong> Investment Choices. Higher education is generally viewed as a good investment, if one can afford it, regardless of the state of the economy. (Credit: modification of work by Jason Bache\/Flickr Creative Commons)[\/caption]\r\n\r\n<\/figure>\r\n
\r\n

\"Eeny, Meeny, Miney, Moe\"\u2014Making Choices<\/h3>\r\n

The Great Recession of 2008\u20132009 touched families around the globe. In too many countries, workers found themselves out of a job. In developed countries, unemployment compensation provided a safety net, but families still saw a marked decrease in disposable income and had to make tough spending decisions. Of course, non-essential, discretionary spending was the first to go.<\/p>\r\n

Even so, there was one particular category that saw a universal increase in spending world-wide during that time\u2014an 18% uptick in the United States, specifically. You might guess that consumers began eating more meals at home, increasing spending at the grocery store. But the Bureau of Labor Statistics\u2019 Consumer Expenditure Survey, which tracks U.S. food spending over time, showed \u201creal total food spending by U.S. households declined five percent between 2006 and 2009.\u201d So, it was not groceries. Just what product would people around the world demand more of during tough economic times, and more importantly, why? (Find out at chapter\u2019s end.)<\/p>\r\n

That question leads us to this chapter\u2019s topic\u2014analyzing how consumers make choices. For most consumers, using \u201ceeny, meeny, miney, moe\u201d is not how they make decisions; their decision-making processes have been educated far beyond a children\u2019s rhyme.<\/p>\r\n\r\n<\/div>\r\n

\r\n
\r\n
\r\n

Topic\u00a0Objectives<\/h3>\r\nTopic 6:\u00a0Consumer Theory<\/strong>\r\n

In this topic, you will learn about:<\/p>\r\n\r\n

    \r\n \t
  • Budget Lines and\u00a0the price ratio<\/li>\r\n \t
  • Indifference and the marginal rate of substitution<\/li>\r\n \t
  • Optimal consumer choice; changes in choice; substitution and income effects of price changes.<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\nMicroeconomics seeks to understand the behavior of individual economic agents, such as individuals and businesses. Economists believe that individuals\u2019 decisions, such as which 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.\r\n\r\nEveryone has their own personal tastes and preferences. The French say:\u00a0\u00e0 chacun son go\u00fbt<\/em>, or \u201cEach to his own taste.\u201d An old Latin saying goes,\u00a0De gustibus non est disputandum<\/em>\u00a0or \u201cThere\u2019s no disputing about taste.\u201d If people\u2019s decisions are based on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make?\r\n\r\nAn 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.\r\n\r\nThe analysis in this chapter will dive deeper into the demand side of our supply and demand model, which will help us develop a deeper understanding of\u00a0all the impacts of a price change beyond a simple difference in quantity demanded.\r\n

    Our Demand\u00a0Model So Far<\/h1>\r\nSo far, we have learned the basics of demand. Our demand curve represents the marginal benefit to consumers. When our quantity increases, our marginal benefits fall. Why is that? We talked briefly about consumers preferring a bundle of goods, and referred back to our production possibility frontier where consumers had to make trade-offs relative to other goods. Essentially, marginal benefit reflects:\r\n\r\n-how much we like a good\u00a0in\u00a0absolute sense, and<\/strong><\/em>\r\n\r\n-how much we like a good\u00a0relative to other goods.<\/em><\/strong>\r\n\r\nThis brings us to the two components of the demand model that we will explore in this chapter:\r\n\r\n1. What goods can we afford?<\/strong>\r\n\r\nThis question will be answered with an analysis of the consumer\u2019s budget line, which shows all the combinations of goods consumers can purchase using their full budget.\r\n\r\n2. What goods do we like?<\/strong>\r\n\r\nThis question will be answered with an analysis of the consumer\u2019s indifference curve, which shows all the bundles of goods that give the consumer the same amount of happiness, or utility.\r\n\r\nBy determining where these two curves are tangent to each other, we can determine where a consumer will consume at each price level.\r\n\r\nBefore we can use these tools, we need to understand all the components, we will start by exploring what goods consumers can afford, given their budget lines.","rendered":"
    <\/div>\n
    \n
    <\/div>
    <\/figcaption>
    \"This
    Figure 1.<\/strong> Investment Choices. Higher education is generally viewed as a good investment, if one can afford it, regardless of the state of the economy. (Credit: modification of work by Jason Bache\/Flickr Creative Commons)<\/figcaption><\/figure>\n<\/figure>\n
    \n

    “Eeny, Meeny, Miney, Moe”\u2014Making Choices<\/h3>\n

    The Great Recession of 2008\u20132009 touched families around the globe. In too many countries, workers found themselves out of a job. In developed countries, unemployment compensation provided a safety net, but families still saw a marked decrease in disposable income and had to make tough spending decisions. Of course, non-essential, discretionary spending was the first to go.<\/p>\n

    Even so, there was one particular category that saw a universal increase in spending world-wide during that time\u2014an 18% uptick in the United States, specifically. You might guess that consumers began eating more meals at home, increasing spending at the grocery store. But the Bureau of Labor Statistics\u2019 Consumer Expenditure Survey, which tracks U.S. food spending over time, showed \u201creal total food spending by U.S. households declined five percent between 2006 and 2009.\u201d So, it was not groceries. Just what product would people around the world demand more of during tough economic times, and more importantly, why? (Find out at chapter\u2019s end.)<\/p>\n

    That question leads us to this chapter\u2019s topic\u2014analyzing how consumers make choices. For most consumers, using \u201ceeny, meeny, miney, moe\u201d is not how they make decisions; their decision-making processes have been educated far beyond a children\u2019s rhyme.<\/p>\n<\/div>\n

    \n
    \n
    \n

    Topic\u00a0Objectives<\/h3>\n

    Topic 6:\u00a0Consumer Theory<\/strong><\/p>\n

    In this topic, you will learn about:<\/p>\n

      \n
    • Budget Lines and\u00a0the price ratio<\/li>\n
    • Indifference and the marginal rate of substitution<\/li>\n
    • Optimal consumer choice; changes in choice; substitution and income effects of price changes.<\/li>\n<\/ul>\n<\/div>\n<\/div>\n<\/div>\n

      Microeconomics seeks to understand the behavior of individual economic agents, such as individuals and businesses. Economists believe that individuals\u2019 decisions, such as which 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.<\/p>\n

      Everyone has their own personal tastes and preferences. The French say:\u00a0\u00e0 chacun son go\u00fbt<\/em>, or \u201cEach to his own taste.\u201d An old Latin saying goes,\u00a0De gustibus non est disputandum<\/em>\u00a0or \u201cThere\u2019s no disputing about taste.\u201d If people\u2019s decisions are based on their own tastes and personal preferences, however, then how can economists hope to analyze the choices consumers make?<\/p>\n

      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.<\/p>\n

      The analysis in this chapter will dive deeper into the demand side of our supply and demand model, which will help us develop a deeper understanding of\u00a0all the impacts of a price change beyond a simple difference in quantity demanded.<\/p>\n

      Our Demand\u00a0Model So Far<\/h1>\n

      So far, we have learned the basics of demand. Our demand curve represents the marginal benefit to consumers. When our quantity increases, our marginal benefits fall. Why is that? We talked briefly about consumers preferring a bundle of goods, and referred back to our production possibility frontier where consumers had to make trade-offs relative to other goods. Essentially, marginal benefit reflects:<\/p>\n

      -how much we like a good\u00a0in\u00a0absolute sense, and<\/strong><\/em><\/p>\n

      -how much we like a good\u00a0relative to other goods.<\/em><\/strong><\/p>\n

      This brings us to the two components of the demand model that we will explore in this chapter:<\/p>\n

      1. What goods can we afford?<\/strong><\/p>\n

      This question will be answered with an analysis of the consumer\u2019s budget line, which shows all the combinations of goods consumers can purchase using their full budget.<\/p>\n

      2. What goods do we like?<\/strong><\/p>\n

      This question will be answered with an analysis of the consumer\u2019s indifference curve, which shows all the bundles of goods that give the consumer the same amount of happiness, or utility.<\/p>\n

      By determining where these two curves are tangent to each other, we can determine where a consumer will consume at each price level.<\/p>\n

      Before we can use these tools, we need to understand all the components, we will start by exploring what goods consumers can afford, given their budget lines.<\/p>\n","protected":false},"author":58,"menu_order":1,"comment_status":"closed","ping_status":"closed","template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-146","chapter","type-chapter","status-publish","hentry"],"part":32,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/146","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/users\/58"}],"replies":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/comments?post=146"}],"version-history":[{"count":8,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/146\/revisions"}],"predecessor-version":[{"id":1286,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/146\/revisions\/1286"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/parts\/32"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/146\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/media?parent=146"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapter-type?post=146"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/contributor?post=146"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/license?post=146"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}