TOPIC
3
Consumer Choice
and the Law of Demand
Note:
the first time you go through each of these topics you should click on
the following items in sequence.
Read
hypertext selection
Go
to the lecture
Part
"a"
Part
"b"
Take
a quick quiz
Work
a problem
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an issue
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The theory
of economics must
begin with
a correct theory of
consumption. —W.S.
Jevons
So,
that's what we'll try to do here. Our objective in this topic is to understand:
-
how a
consumer goes about deciding how much of different goods to buy in order
to maximize his or her total satisfaction, given available income.
-
why a
consumer will tend to buy more of a good when its price is lower and less
when its price is higher.
-
how the
responsiveness of changes in quantity demanded to changes in price can
be measured, the concept of price elasticity of demand.
-
the concept
of "consumer surplus"
-
how the
theory of consumer behaviour based on "utility" can be replicated using
"indifference curve analysis".
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