Managerial Economics: The Consumer and Consumer Behavior

These flashcards cover key concepts of consumer behavior and economic models discussed in the lecture, providing a concise overview for exam preparation.

What is consumer behavior?

Consumer behavior addresses how consumers respond or react to alternative choices that confront them.

What is the primary goal of understanding consumer behavior for managers?

Understanding consumer behavior is crucial for making profitable pricing, advertising, product design, and production decisions.

What are the key assumptions of the standard economic model of consumer behavior?

Buyers are rational, more is preferred to less, and buyers seek to maximize their utility.

What is the difference between consumer opportunities and consumer preferences?

Consumer opportunities refer to the possible goods and services consumers can afford, while consumer preferences refer to the goods and services consumers actually choose to consume.

What do indifference curves represent in consumer behavior analysis?

Indifference curves define the combinations of two or more goods that provide the same level of satisfaction to the consumer.

What does the concept of diminishing marginal rate of substitution imply?

As a consumer substitutes one good for another, the rate at which they are willing to give up the first good for the second decreases.

What is the relationship between budget constraints and consumer equilibrium?

Consumer equilibrium occurs at a point where the consumer maximizes their utility given their budget constraints.

What is the significance of the budget line in consumer behavior?

The budget line illustrates all possible combinations of goods that a consumer can afford based on their income and the prices of goods.

How do changes in income affect the budget line?

An increase in income shifts the budget line outward while a decrease shifts it inward.

What distinguishes normal goods from inferior goods in consumer theory?

Normal goods see an increase in consumption with an increase in income, while inferior goods see a decrease in consumption with an increase in income.

What is the concept of marginal utility?

Marginal utility measures the additional satisfaction a consumer derives from consuming an extra unit of a good.

What is the formula for the utility function for two goods?

The utility function can be represented as U = f(X,Y), where X and Y are the two goods.

What is the role of the Market Rate of Substitution (MRS)?

The MRS indicates the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction.

What is the marginal rate of substitution at consumer equilibrium?

At consumer equilibrium, the marginal rate of substitution (MRS) equals the market rate of substitution.

What is the outcome when MUx/Px = MUy/Py?

This condition indicates that the optimal combination of goods occurs where the marginal utility per price spent is equal for both goods.