Chapter 6 The Logic of Consumer Choice

Schedule1 Schedule 2 Schedule 3 Schedule 4 Units of ATU Units of B TU Units of C TU Units of D TU

Do RATS understand the inverse relationship between price and quantity? Choice between two liquids –Root beer –Collins mix Given 300 pushes (each liquid had a different number of pushes to get it – price) Found rats switched to the “cheaper” liquid when the “price” changed

Why isn’t education and medical care free? If cost = 0 when do we stop using it? When MU = 0 Thus we will see a lot of frivolous use of programs. It costs you nothing so use it.

Consumer Surplus The difference between the actual price buyers pay for a good and the maximum amount they are WILLING and ABLE to pay for it Dollar measure of benefit gained from a price decrease

Consumer Surplus cont. Triangle under the demand curve and above the equilibrium price out to the equilibrium quantity

Consumers' Surplus

Changes in Supply affect Consumer Surplus Decrease in the number of sellers Advance in technology Increase in the price of relevant resources A per-unit subsidy placed on producers/seller

Consumers' Surplus

Sales schemes Consumer is willing to buy –One pair of shorts for $40 –Second pair of shorts for $30 Store has a choice –Sell shorts for $30 –Have sale where buy first for $40 get $10 off second pair? –Which has more CS??? (hint only use the demand curve)

Consumers’ Surplus and Two Pricing Schemes

Do we understand Chapter 6?? In-class exercise 6

Chapter 6 homework Numbers 3 and 4 Working with graphs and numbers 1, 3, 4 and 5