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Theory of Consumer Behavior: Chapter Outline

The document outlines the Theory of Consumer Behavior, focusing on utility theory and the budget constraint. It discusses how economic behavior can be analyzed through stimulus-response contexts, comparing it to biological processes like photosynthesis. The chapter emphasizes the rationality of consumers in maximizing satisfaction within their budget constraints.

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8 views1 page

Theory of Consumer Behavior: Chapter Outline

The document outlines the Theory of Consumer Behavior, focusing on utility theory and the budget constraint. It discusses how economic behavior can be analyzed through stimulus-response contexts, comparing it to biological processes like photosynthesis. The chapter emphasizes the rationality of consumers in maximizing satisfaction within their budget constraints.

Uploaded by

lovebook888
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Theory of Consumer
Behavior
Chapter Outline
UtILItY THEORY 59 THE BudGEt CONStRAINt  65
Total Utility 60 SummARY 68
Marginal Utility 61 KEY TERmS 69
Law of Diminishing Marginal Utility 62 TEStING YOuR EcONOmIc
INdIFFERENcE CuRVES 62 QuOtIENt 69
Concept of Isoutility 63 REFERENcES 72
Marginal Rate of Substitution 64

The biological process of photosynthesis, in which the addition of light to a


plant’s environment results in plant growth, can be thought of in a stimulus–
response context. The stimulus is the addition of light, and the response is the
plant growth. This process can be studied in a controlled environment using
sophisticated measuring devices.
Economic behavior also can be thought of in a stimulus–response context.
For example, a fall in the price of ice cream acts as a stimulus, causing consum-
ers to purchase more ice cream. These purchases can be measured and recorded.
In most respects, however, the similarities end here. The complex process of
­photosynthesis can be examined and studied directly, but most economic ­behavior
processes cannot be. In fact, this example illustrates the distinction ­between the
natural sciences (e.g., biology, chemistry, physics) and the social ­sciences (e.g.,
economics). Most economic behavior processes cannot be studied in a controlled
environment.
We can examine the technical relationships of converting inputs to outputs
in a production process, but we cannot observe the process of connecting the
economic stimulus to an economic decision. Why does Robbin purchase more
ice cream than Willis when both face the same prices and have the same income?
The most prominent economic theories of consumer behavior assume that con-
sumers are rational and seek to maximize their satisfaction while staying within
their budget. In this chapter, we discuss consumer theory and how it can be used
to understand the behavior of consumers.

utIlItY THEorY
Consumers typically face a broad set of choices when allocating their income
among food and non-food goods and services. Historically, considerable attention
has been given to the development of a theoretical framework that will help us

M03_PENS3064_06_SE_C03.indd 59 12/11/14 2:00 PM

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