Principles+of+Economics+7th+Edition+Mankiw-Solution+Manual Chapter 21

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1、Chapter21/TheTheoryofConsumerChoice❖38921THETHEORYOFCONSUMERCHOICEWHAT’SNEWINTHESEVENTHEDITION:Therearenomajorchangestothischapter.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:Øhowabudgetconstraintrepresentsthechoicesaconsumercanaf

2、ford.Øhowindifferencecurvescanbeusedtorepresentaconsumer’spreferences.Øhowaconsumer’soptimalchoicesaredetermined.Øhowaconsumerrespondstochangesinincomeandchangesinprices.Øhowtodecomposetheimpactofapricechangeintoanincomeeffectandasubstitutioneffect.Øho

3、wtoapplythetheoryofconsumerchoicetothreequestionsabouthouseholdbehavior.CONTEXTANDPURPOSE:Chapter21isthefirstoftwounrelatedchaptersthatintroducestudentstoadvancedtopicsinmicroeconomics.Thesetwochaptersareintendedtowhettheirappetitesforfurtherstudyineco

4、nomics.Chapter21isdevotedtoanadvancedtopicknownasthetheoryofconsumerchoice.ThepurposeofChapter21istodevelopthetheorythatdescribeshowconsumersmakedecisionsaboutwhattobuy.Sofar,thesedecisionshavebeensummarizedwiththedemandcurve.Thetheoryofconsumerchoiceu

5、nderliesthedemandcurve.Afterdevelopingthetheory,thetheoryisappliedtoanumberofquestionsabouthowtheeconomyworks.©2012CengageLearning.AllRightsReserved.Maynotbescanned,copiedorduplicated,orpostedtoapubliclyaccessiblewebsite,inwholeorinpart.Chapter21/TheTh

6、eoryofConsumerChoice❖389KEYPOINTS:·Aconsumer’sbudgetconstraintshowsthepossiblecombinationsofdifferentgoodsshecanbuygivenherincomeandthepricesofthegoods.Theslopeofthebudgetconstraintequalstherelativepriceofthegoods.·Theconsumer’sindifferencecurvesrepres

7、entherpreferences.Anindifferencecurveshowsthevariousbundlesofgoodsthatmaketheconsumerequallyhappy.Pointsonhigherindifferencecurvesarepreferredtopointsonlowerindifferencecurves.Theslopeofanindifferencecurveatanypointistheconsumer'smarginalrateofsubstitu

8、tion—therateatwhichtheconsumeriswillingtotradeonegoodfortheother.·Theconsumeroptimizesbychoosingthepointonherbudgetconstraintthatliesonthehighestindifferencecurve.Atthispoint,theslopeoftheindifferencecurve(themarginalrateofsubstitutionb