5. Theory of Consumer Behavior and Rational Choice. Теория потребительского поведения и рационального выбора.

T he utility of a consumer is a measure of the satisfaction the consumer derives from consumption of goods and services. An individual’s consumption bundle is the collection of all the goods and services consumed by that individual. An individual’s utility function gives the total utility generated by his or her consumption bundle. The unit of utility is a util. The marginal utility of a good or service is the change in total utility generated by consuming one additional unit of that good or service. The marginal utility curve shows how marginal utility depends on the quantity of a good or service consumed. The principle of diminishing marginal utility says that each successive unit of a good or service consumed adds less to total utility than the previous unit. The marginal utility curve slopes downward due to diminishing marginal utility.

A budget constraint limits a consumer’s spending to no more than his or her income. It defines the consumer’s consumption possibilities, the set of all affordable consumption bundles. A consumer who spends all of his or her income will choose a consumption bundle on the budget line. An individual chooses the consumption bundle that maximizes total utility, the optimal consumption bundle.

T he marginal utility per dollar spent on a good or service is the additional utility from spending one more dollar on that good or service. The optimal consumption rule says that when a consumer maximizes utility, the marginal utility per dollar spent must be the same for all goods and services in the consumption bundle (MU₁/P₁=MU₂/P₂).

Changes in the price of a good affect the quantity consumed in two possible ways: the substitution effect and the income effect. For normal goods, the substitution and income effects reinforce each other. For inferior goods, however, they work in opposite directions.

An indifference curve is a contour line that shows all the consumption bundles that yield the same amount of total utility for an individual. The entire utility function of an individual can be represented by an indifference curve map, a collection of indifference curves in which each curve corresponds to a different total utility level. General properties: 1) indifference curves never cross; 2) the farther out an indifference curve is from the origin, the higher the level of total utility it indicates; 3) they are downward sloping; 4) are convex as a result of diminishing marginal utility.

T he marginal rate of substitution, or MRS, of R in place of M—the rate at which a consumer is willing to substitute more R for less M—is equal to MUR/MUM and is also equal to minus the slope of the indifference curve when R is on the horizontal axis and M is on the vertical axis. Convex indifference curves get flatter as you move to the right along the horizontal axis and steeper as you move upward along the vertical axis because of diminishing marginal utility: a consumer requires more and more units of R to substitute for a forgone unit of M as the amount of R consumed rises relative to the amount of M consumed.

The tangency condition between the indifference curve and the budget line holds when the indifference curve and the budget line just touch. This condition determines the optimal consumption bundle when the indifference curves have the typical convex shape.

The relative price rule says that at the optimal consumption bundle, the marginal rate of substitution between two goods is equal to their relative price. At the optimal consumption bundle:−MU_R /MU_M = − P_R /P_M. Optimal consumption rule: MU_R / P_R= MU_M /P_M