Consumer Behavior

Core Questions:
- How do consumers allocate their limited income among various goods and services?
- How do consumers make purchasing decisions when faced with budget constraints?
- How can consumer preferences be determined through observations of their buying behavior?

Consumer Preferences:
- Focused on understanding how and why individuals prefer one good over another.
Budget Constraints:
- Acknowledges that people have limited incomes, which restrict their purchasing power.
Consumer Choices (Maximizing Satisfaction):
- Examines what amount and type of goods consumers will purchase given their preferences and limited incomes.
- Aims to identify the combination of goods that maximizes consumer satisfaction (utility).

Market Basket:
- A collection of one or more commodities.
- Individuals make choices between different market baskets containing varying goods.

Completeness: Consumers can rank all possible market baskets. For any two baskets, A and B, a consumer can state a preference for A over B, B over A, or indifference between A and B.
Transitivity: Preferences are consistent. If a consumer prefers A to B, and B to C, then they must prefer A to C. This ensures rational decision-making.
More is Better: Consumers always prefer more of any good to less. This means satiety is not reached, and individuals always derive additional satisfaction from extra units of a good.

Definition: Graphical representations showing all combinations of market baskets that provide a consumer with the same level of satisfaction.
- A person is equally satisfied with any choice along a given indifference curve.