Consumer Behavior

Constraints of the Consumer

 Current Income
 Assets (from Savings)
 Skills
 Time
 Future Income (for Borrowing)

Choice Sets for the consumer

 Our time and skill when we work - leisure or work?
 A financial asset when we have cash in our savings - spend or not spend?
 Our ability to earn future income when we borrow - borrow or not borrow

Choices, Utility (Satisfaction level need by the consumer), Opportunity Cost

 Individuals know their choices (Complete tastes)
 Individuals have preferences (Transitivity)
o People can rock their preferences
o Most preferred
 More is better (Monotonicity)
 Averages are better than extremes (Convexity)
 No sudden "jumps"/changes (Continuity)
 Choices and trade-offs (MRS & opportunity costs) - lose some, gain some (slope)(Marginal rate
of substitution)