Vechkanov G.S. Microeconomics Consumer preferences and utility. Consumer preference and consumer choice

PREFERENCES are one of the factors influencing the choice of specific goods by individual consumers.

Good in consumption theory, any object of consumption that provides a certain satisfaction to the consumer. Goods are consumed, as a rule, in certain sets.

Set of benefits– a set of specific types of goods in certain volumes consumed in a given period.

When choosing goods for the purpose of purchasing them, the consumer proceeds from achieving greatest benefit given the available capabilities, which represents a measure of satisfying the individual’s needs, i.e. utility.

When choosing the goods to be purchased, the buyer has certain individual preferences, but he is limited in satisfying his preferences by the budget constraint. What does the buyer do in these conditions, what choice provides the maximum possible utility?

The necessary prerequisites for the theory of consumer choice are the following axioms.

1. Axiom complete orderliness consumer preferences. This axiom assumes that the consumer himself must make and implement consumption decisions.

2. Axiom transitivity consumer preferences. In order to make a certain decision and implement it, the consumer must consistently transfer preferences from some goods and their sets to others. The transitivity assumption guarantees the rationality (consistency) of preferences. Otherwise, consumer behavior is contradictory. In this regard, they say that “preferences have curled into a ring,” that is, tastes have changed.

3. Axiom about the insatiability of needs states that consumers always prefer large quantity any good to the lesser (or, in short, “more is always better”).

Anti-goods that have negative utility do not fit this axiom, because they reduce the level of well-being of a given consumer.

These three prerequisites are necessary to define the utility function.

Utility function– this is the relationship between the volumes of goods consumed and the level of utility achieved by the consumer, i.e. it shows the preferences of the consumer.

The utility function is a kind of target function of the consumer’s actions in consumer choice, expressing the process of ordering the sets of goods chosen by the consumer to the level of satisfying needs.

USEFULNESS expresses the measure of satisfaction that a subject receives from consuming a good or performing an action.

Utility is a purely individual concept: what is useful for one subject may be useless for another. Usefulness depends on consumer properties benefits and from the consumption process itself, from who and how satisfies their needs. Utility itself changes as a particular good increases or decreases. In the first case it decreases, in the second it increases.

Utility has the property of ordinal measurability, when alternatives can be ranked, but does not have the property of quantitative measurability.

Distinguish total (cumulative) And limit utility.

Total (cumulative) utility is the satisfaction that consumers receive from consuming a particular set of goods.

Marginal utility is an increase in the degree of satisfaction (utility) when consuming or using an additional unit of a good over a certain period of time. Marginal utility is a utility equal to the increment or increase general utility resulting from the purchase of an additional unit of a given good.

There are relationships between total and marginal utilities. Total utility is equal to the sum of all marginal utilities added from the beginning. Total utility increases with consumption, but at a decreasing rate, meaning that marginal utility decreases as the need for a given good is saturated.

For example, if an individual, after eating two servings of ice cream, eats a third, then general the utility will increase, and if he eats the fourth, it will continue to grow. However marginal (incremental) The utility of the fourth ice cream will not be as great as the marginal utility of consuming the third.

This example can be illustrated by graphs of total and marginal utility (Fig. 20.1, 20.2).

The shaded rectangles (Fig. 20.1) show the additional utility obtained by consuming each subsequent unit of the good. In Fig. 20.1 shows that the growth rate of total utility decreases, because the value of marginal utility decreases. Main function marginal utility (Fig. 20.2) will determine the slope of the main curve of total utility (Fig. 20.1).

The concept of “utility” was first introduced into science by the Swiss mathematician Daniel Bernoulli. The concept of utility in the context of social sciences was first used by Jeremy Bentham.

Rice. 20.1. Overall usefulness

Rice. 20.2. Marginal utility

The neoclassicist William Stanley Jevons (1835–1882) made a significant contribution to the development of utility theory. Many 19th century utilitarians believed that utility is a mental phenomenon that can be measured quantitatively in the same way as, for example, distance or temperature. These are, in brief, the metamorphoses in the theory of utility.

Jeremiah BENTHAM (1748–1832), English economist, sociologist, philosopher and lawyer, founder of the ethics of utilitarianism, ideologist of the middle bourgeoisie of the era of the industrial revolution in England. Bentham advocated the idea of free trade and unfettered competition, which, he argued, should ensure public peace, justice and equality. He considered social capital as a constant value. Variable capital, which he called the “working fund,” acted, in his opinion, as a separate part of social wealth, depending on the forces of nature.

Daniel BERNOULLI (1700–1782), Swiss mathematician. He studied physiology and medicine, but most of all - mathematics and mechanics. In 1725–1733 he worked at the St. Petersburg Academy of Sciences, first at the department of physiology and then mechanics. Subsequently he was an honorary member of the St. Petersburg Academy of Sciences. Professor in Basel in physiology (1733) and mechanics (1750).

Consumer preferences are the desire to possess a particular set of goods and not another. Consumer preferences are purely individual, but there are factors that influence them: consumer tastes, budgetary possibilities.

Market demand realized. through consumer choice - a form of demand realization. The main factor is the usefulness of a particular product.

Utility is a purely individual concept; what is useful for one may be useless for another. At the same time, it changes with an increase in the amount of products consumed.

Austrian economists (neoclassical) Menger (1840-1921) and E. Böhm-Bawerk (1851-1914) developed the theory of marginal utility. They came to the conclusion that consumer choice depends on the degree of significance of the purchased good for a given individual, on the level of saturation and quantity of these goods, on the possibility of their reproduction. Conclusion: as new units of a good are consumed, the rate of increase in their benefit decreases. They developed the law of diminishing marginal utility (with an increase in V consumption, the utility of each subsequent consumption unit of production is less than the utility of the previous one). The founders of the theory of subjective marginal utility proceeded from the fact that marginal utility determines the price of an economic good - a commodity.

Price is the monetary assessment of a product by each market participant and the result of a comparison of these subjective assessments taking into account other factors influencing the formation of prices during competition. The market price is formed under the influence of a number of factors: supply and demand, production costs, competitors' prices, etc. Demand for a product determines the maximum price that firms can set. Gross production costs (sum of fixed and variable costs) determine its minimum value. The behavior of competitors and the prices of their products have a significant impact on the price.

The price is set per unit of goods. When the last unit of a good is purchased by the buyer, it determines its price and the price of all other units of this good.

More on topic 8. Consumer preferences and marginal utility. Concept of price:

1. Consumer preferences and marginal utility
6.1. Consumer behavior and its main motives. Utility. Total and marginal utility. The concept of a rational consumer
1. Total and marginal utility. Utility maximization rule
2.3.1 Usefulness. Marginal utility (cardinalist concept).
3. Gross and marginal costs. Marginal revenue and price. The rule of equality of marginal revenue to marginal costs is the basis for determining the free price

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1. Consumerpersonal preferences and utility

Preferences are one of the factors influencing the choice of specific goods by individual consumers.

A good in consumption theory is any object of consumption that provides a certain satisfaction to the consumer. Goods are consumed, as a rule, in certain sets.

A set of goods is a set of specific types of goods in certain volumes consumed in a given period.

When choosing goods for the purpose of purchasing them, the consumer proceeds from achieving the greatest benefit given the available opportunities, which is a measure of satisfying the individual’s needs, i.e. utility.

The necessary prerequisites for the theory of consumer choice are the following axioms.

1. Axiom of complete orderliness of consumer preferences. This axiom assumes that the consumer himself must make and implement consumption decisions.

2. Axiom of transitivity of consumer preferences. In order to make a certain decision and implement it, the consumer must consistently transfer preferences from some goods and their sets to others. The transitivity assumption guarantees the rationality (consistency) of preferences. Otherwise, consumer behavior is contradictory. In this regard, they say that “preferences have curled up,” that is, tastes have changed.

3. The axiom of the insatiability of needs states that consumers always prefer more of any good to less (or, in short, “more is always better”).

Anti-goods that have negative utility do not fit this axiom, because they reduce the level of well-being of a given consumer.

These three premises are necessary in order to determine the utility function.

The utility function is the relationship between the volumes of goods consumed and the level of utility achieved by the consumer, i.e. it shows the consumer's preferences.

The utility function is a kind of target function of consumer actions in consumer choice, expressing the process of ordering the sets of goods chosen by the consumer to the level of satisfaction of needs.

Utility expresses the measure of satisfaction that a subject receives from consuming a good or performing an action.

Utility is a purely individual concept: what is useful for one subject may be useless for another. Utility depends on the consumer properties of goods and on the consumption process itself, on who satisfies their needs and how. Utility itself changes as a particular good increases or decreases. In the first case it decreases, in the second it increases.

Utility has the property of ordinal measurability, when alternatives can be ranked, but does not have the property of quantitative measurability.

There is a distinction between total (total) and marginal utility.

Total (aggregate) utility is the satisfaction that consumers receive from consuming a specific set of goods.

Marginal utility is the increase in the degree of satisfaction (utility) when consuming or using an additional unit of a good over a certain period of time. Marginal utility is a utility equal to the increment or increase in total utility resulting from the purchase of an additional unit of a given good.

There are relationships between total and marginal utility. Total utility is equal to the sum of all marginal utilities added from the beginning. Total utility increases with increasing consumption, but at a decreasing rate, meaning that marginal utility decreases as the need for a given good is saturated (the law of diminishing marginal utility). According to the law of diminishing marginal utility, each subsequent unit of a consumed good has a marginal utility lower than the previous one, i.e. the additional consumer effect obtained from an increase in goods one unit lower than the effect obtained from the previous unit.

For example, if an individual, after eating two servings of ice cream, eats a third, then the total utility will increase, and if he eats a fourth, then it will continue to increase. However, the marginal (incremental) utility of the fourth serving of ice cream will not be as great as the marginal utility of consuming the third serving.

This example can be illustrated on graphs of total and marginal utility (Fig. 1.1.).

The shaded rectangles show the additional utility obtained by consuming each subsequent unit of the good. In Fig. 1.1 it is clear that the growth rate of total utility decreases, because the value of marginal utility decreases. The main marginal utility function (Figure 1.2) will determine the slope of the main total utility curve.

The concept of “utility” was first introduced into science by the Swiss mathematician Daniel Bernoulli (1700-1782). The concept of utility in the context of social sciences was first used by Jeremy Bentham (1748-1832).

Rice. 1.1 General usefulness

Rice. 1.2 Marginal utility

The practical significance of the law of diminishing marginal utility lies primarily in the fact that it allows us to predict the behavior of buyers when choosing the quantity and set of goods purchased and consumed. The principle of diminishing marginal utility can be applied to more difficult situation when the buyer is faced with the problem of choosing and consuming several goods. In this case, when the marginal utility obtained per unit of value of one good becomes equal to the marginal utility obtained per each unit of value of another good, consumer equilibrium is achieved. This can be formulated differently: the ratio of the marginal utilities of individual goods to their prices is equal.

The concept of consumer utility of a product is the basis for constructing the so-called consumption utility function. This function describes the dependence of the total consumer utility of a set of goods on the number of goods purchased over a certain period of time. It is a function of many variables.

The neoclassicist William Stanley Jevons (1835-1882) made a significant contribution to the development of utility theory. Many 19th century utilitarians believed that utility is a mental phenomenon that can be measured quantitatively in the same way as, for example, distance or temperature. These are, in brief, the metamorphoses in the theory of utility.

2. Cardinalist (quantitative) theory of marginal utility. State lawshay

Cardinalist (quantitative) utility is the subjective utility, or satisfaction, that a consumer receives from consuming goods, measured in absolute terms. Therefore, it is meant that it is possible to measure the exact amount of utility that a consumer derives from consuming a good.

The cardinalist (quantitative) theory of marginal utility was proposed independently of each other by W. Jevons (1835-1882), C. Menger (1840-1921) and L. Walras (1834-1910) in the last third of the 19th century. This theory was based on the assumption that it was possible to compare the utility of various goods. This theory was shared by A. Marshall.

Economists believed that utility could be measured in conventional units - utils. But later it was proven that it was impossible to create an accurate measure of quantitative utility, and an alternative to the cardinalist (quantitative) ordinalist (ordinal) theory of utility arose.

According to this theory, the cost (value) of a good is determined not by labor costs, but by the importance of the need that is satisfied by this good, and the subjective usefulness of a good depends on the degree of rarity of the good and on the degree of saturation of the need for it.

The quantitative approach to utility analysis does not proceed from an objective measurement of the utility of a good in utilities, since the same good is of great value for one consumer, but has no value for another.

This theory aimed economic theory to the study of consumer behavior, proving that marginal utility as the social resultant of subjective assessments of independent subjects is the determining factor influencing demand.

The cardinalist (quantitative) theory is based on the ability of the consumer to give a quantitative assessment in terms of the utility of any good he consumes, a set of goods, which can be expressed as a function of total utility:

TU=F(QA,QB,...,QZ),

where TU is the total utility of a given set of goods; QA, QB, ..., Qz - volumes of consumption of goods A, B,..., Z per unit of time.

Using the cardinalist (quantitative) theory of utility, we can characterize not only total utility, but also marginal utility as an additional increase in a given level of well-being obtained by consuming an additional amount of a good of a given type and constant amounts of consumed goods of all other types.

Total and marginal utility are shown on the graphs (Fig. 2.1, 2.2).

Rice. 2.1 General usefulness

Rice. 2.2 Marginal utility

Utility expressed in monetary units is called the value of a given good. The values of various goods, in contrast to utility, are quantitatively comparable, because they are expressed in the same monetary units. Marginal value is equal to the total value of a given quantity of a good. The cost of this good is market price one unit of a good multiplied by the number of units of a given good. The value (benefit) is greater than the cost, since the consumer would be willing to pay a higher price for previous units of the good than what he actually pays at the time of purchase. The maximum excess of total value over total costs is achieved at the point where marginal value equals price.

Most goods have the property of diminishing marginal utility, according to which the greater the consumption of a certain good, the smaller the increment in utility obtained from a single increment in consumption of this good. This explains why the demand curve for these goods is downward sloping. In Fig. 2.3 shows that for a hungry person, the utility of the first slice of bread he consumes is very high (QA), but as his appetite is saturated, each subsequent slice of bread brings less and less satisfaction: the fifth slice of bread will provide only QB of additional utility.

Rice. 2.3 Diminishing marginal utility

Gossen's laws: the principle (law) of diminishing utility is often called Gossen's first law, named after the German economist G. Gossen (1810-1859), who formulated it in 1854.

Gossen's work opened up a new direction in economic thought. The treasury of economic thought included two postulates, which later, on the initiative of F. Wieser and V. Lexis, became known as Gossen’s first and second laws. Through these laws, Gossen described the rules of rational behavior of a subject seeking to extract maximum utility from its economic activities.

The first question that arises when solving this problem is what determines the value of utility? Gossen drew attention to the fact that utility depends not only on the consumer properties of the good, but also on the process of its consumption.

The first law contains two provisions. The first asserts a decrease in the utility of subsequent units of a good in one continuous act of consumption, so that, at the limit, complete saturation with a given good is ensured. The second proposition states that the utility of the first units of a good decreases with repeated acts of consumption.

The law of diminishing marginal utility states that as more quantities of the same good are consumed, its total utility increases slowly.

It should be noted that the law of diminishing marginal utility is not universal, since in a number of cases the marginal utility of subsequent units of a good first increases, reaches a maximum, and only then begins to decrease. A similar dependence exists for small portions of divisible goods.

Gossen's second law states that the utility derived from the latter monetary unit, spent on the acquisition of any good, is the same regardless of what particular good it was spent on.

As formulated by the author, the second law sounds like this: “An individual who has the freedom to choose between a certain number different types consumption, but who does not have enough time to use all of them in full, in order to achieve the maximum of his pleasure, no matter how different the absolute value of the individual pleasures may be, must, before fully using the greatest of them, use all of them partially, and, moreover, in such a ratio, so that the size of each pleasure at the moment of cessation of its use for all types of consumption remains equal." * In modern language, this law can be formulated as follows: in order to obtain maximum utility from the consumption of a given set of goods for a limited period of time, you need to consume each of them in such quantities as at which the marginal utility of all consumed goods will be equal to the same value. If there is no such equality, then by redistributing the time allocated for the consumption of individual goods, it is possible to increase the total utility.

3. Ordinal (ordinal) utility theory. Indifference curve, map of indifference curves. Budget limit on consumption fucker. Consumer Equilibrium

Ordinal utility is the subjective utility, or satisfaction, that a consumer receives from the good he consumes, measured on an ordinal scale.

Ordinalist (ordinal) utility theory is an alternative to cardinalist (quantity) utility theory.

The ordinal (ordinal) theory of utility was proposed by the English economist and statistician F. Edgeworth (1845-1926), the Italian-Swiss sociologist and economist V. Pareto (1848-1923), and the American economist and statistician I. Fisher (1867-1947). In the 30s XX century after the work of R. Allen and J. Hicks, this theory acquired its completed form and remains the most widespread to this day.

According to this theory, marginal utility cannot be measured; The consumer does not measure the utility of individual goods, but the utility of bundles of goods. Only the order of preference for sets of goods is measurable. The criterion of the ordinal (ordinal) theory of utility involves the ordering by the consumer of his preferences regarding goods. The consumer systematizes the choice of a set of goods according to the level of satisfaction. For example, the 1st set of goods gives him the greatest satisfaction, the 2nd set - less satisfaction, the 3rd set - even less satisfaction, etc. Consequently, such systematization gives an idea of consumers' preferences regarding the set of goods. However, it does not give an idea of the differences in satisfaction with these sets of goods. In other words, with practical point In terms of vision, a consumer can say which bundle he prefers over another, but cannot determine whether one bundle is better than another.

Ordinal utility theory is based on several axioms. Note that there is no unity among economists regarding the number and name of axioms. Some authors call it four axioms, others call it three axioms. Let us highlight the following axioms.

1. Axiom of complete (perfect) ordering of consumer preferences. A consumer making a purchase can always either name which of two sets of goods is better than the other, or recognize them as equivalent. So, for sets A and B, either A > - B, or B > - A, or A ~ B, where the sign "> -" expresses a relation of preference, and the sign "~" - a relation of equivalence or indifference.

2. The axiom of transitivity of consumer preferences means that for acceptance definite decision and its implementation, the consumer must consistently transfer preferences from some goods and their sets to others. So, if A > - B, and B > - C, then always A > - B, and if A ~ B and B ~ C, then always A ~ C. From the presented ranking it follows that A gives more satisfaction than B , and B is greater than C. Therefore, A gives greater satisfaction than B. Transitivity also suggests that if the consumer does not distinguish between the alternatives A and B and between B and C, then he should always not distinguish between A and IN.

3. The axiom of the insatiability of needs states that consumers always prefer a larger quantity of any good to a smaller one. Anti-goods that have negative utility do not fit this axiom, since they reduce the level of well-being of a given consumer. Thus, air pollution and noise reduce the level of utility of consumers. Ordinal utility theory uses curves and an indifference map. Graphically, the system of consumer preferences is illustrated using indifference curves, first used by F. Edgeworth in 1881.

Consumer indifference curve is a curve constructed in the coordinates “quantity of goods A - quantity of goods B,” the points of which reflect the combination of goods chosen by the consumer. The curve reflects a possible set of options, combinations of these goods (goods) that have the same utility for the consumer, as a result of which he is indifferent to which set of two goods to choose that are in a quantitative combination corresponding to the position of the points on the indifference curve.

An indifference curve depicts a set of bundles between which the consumer makes no distinction. Any set on the curve will provide the same level of satisfaction. In other words, the indifference curve depicts alternative bundles of goods that provide the same level of utility (Figure 3.1).

Rice. 3.1. Indifference curve

In Fig. 3.1 on one axis the number of units of clothing is plotted, on the other - the number of units of food. By connecting points A, B, C, we obtain a curve Ul, each point of which shows possible combinations of clothing and food items that give the same satisfaction. Curve U1 is called the indifference curve, which indicates that the consumer is indifferent to these three sets of products, i.e., the consumer feels neither better nor worse by giving up 10 units of food and receiving 20 units of clothing when moving from bundle A to bundle B. Similarly, the consumer ranks A and C equally, i.e., he can give up 10 units of clothing to get 20 units of food.

In Fig. 3.1 the indifference curve goes down from left to right. To see why this is so, suppose instead that the indifference curve slopes upward, from point A towards D. This contradicts the assumption that more consumer goods are better. Since bundle D contains more of both food and clothing than bundle A, it must be preferred to A and therefore cannot be on the same indifference curve as A. Any bundle of goods lying above and to the right of the indifference curve U1 in Fig. preferable to any set on U1.

Indifference curves have the following properties.

1. An indifference curve located to the right and above another curve is more preferable for the consumer.

2. Indifference curves always have a negative slope, because rational consumers will prefer a larger quantity of any set to a smaller quantity.

3. Indifference curves have a concave shape due to decreasing marginal rates of substitution.

4. Indifference curves never intersect and usually show decreasing marginal rates of substitution of one good for another.

5. Sets of goods on curves more distant from the origin of coordinates are preferable to sets of goods located on curves less distant from the coordinates.

To describe a person's preferences for all sets of food and clothing, a family of indifference curves can be drawn, which is called an indifference curve map.

An indifference curve map is a way of graphically depicting the utility function for some specific consumer (Fig. 3.2).

In Fig. Figure 3.2 shows four indifference curves that form a family - a map of indifference curves. Bundles on indifference curves further from the origin provide the consumer with greater utility and are therefore preferable to bundles on curves less distant. In Fig. 3.2 U4>U3>U2>U1.

Rice. 3.2. Indifference curve map

A map of indifference curves gives an idea of the tastes of a particular consumer, since it illustrates the rate of substitution of two goods at any level of consumption of these goods. When we're talking about that the tastes of consumers are known, then what is meant is the entire map of indifference curves, and not the current ratio of units of two goods. In a map of indifference curves, each curve connects points with the same utility.

Let the Ivanov household only need to purchase either 10 units of good A or 5 units of good B to satisfy its needs. Another combination of these goods can bring them exactly the same satisfaction of needs. Suppose the answer is 7 units of product A and 10 units of product B. If, according to the Ivanovs’ subjective assessments, they receive equal satisfaction of their needs from various combinations of goods A and B, then they say that the Ivanovs are “indifferent” to such combinations of these goods.

The Ivanovs can purchase 10 units of good A and 5 units of good B. Having reduced to 7 units of good A, they must compensate for the decrease in the level of satisfaction of needs by purchasing 10 units of good B, which corresponds to the movement of the curve from point A to point B. In this case, the utility brought by the former units of good B will be much higher than the utility lost due to a decrease in the last units of good A. This follows from the law of diminishing marginal utility. A decrease in the volume of product A by 3 units is compensated by an increase in product B by 5 units. A further decrease in good A will require a more significant increase in good B in the purchased set. And this, by the way, indicates that when moving to point E, the utility of a unit of decreasing good A increases, and the utility of a unit of increasing good B decreases. Thus, each of the points of the ABCDE curve corresponds to the same total utility of a set of goods A and B. Ivanov does not care which set to choose, since they all provide the same satisfaction of needs.

Strictly speaking, we could choose any point on the coordinate plane reflecting a specific combination of units of goods A and B, and construct another line of indifference passing through this point. Carrying out this operation n times, we obtain a set of indifference curves, which is called a map of indifference curves. It gives an idea of the tastes of a particular buyer, because it shows the rate of substitution of two goods at any level of consumption of these goods. When they say that the buyer's tastes are known, they mean the entire map of indifference curves, and not the current ratio of clothing units and food products. In addition, it allows you to show on a graph the relationship between three variables: the quantities of goods A and B and utility.

When analyzing buyer behavior using indifference curves, the question arises: how much of one good is he willing to give up in order to purchase an additional unit of another. To do this, the concept of marginal rate of substitution (MRS) is introduced, which answers the question posed.

The main working concept of ordinal utility theory is the marginal rate of substitution MRS.

The marginal rate of substitution (MRS) measures how many units of one good a consumer must give up in order to purchase an additional unit of another good. In other words, it is the ratio of the marginal utility of two goods.

The marginal rate of substitution measures the willingness to exchange one good for every unit of another without gaining or losing utility. The marginal rate of substitution is the rate at which one good can be substituted for another without any gain or loss to consumer satisfaction.

For example, in order to buy an additional unit of product A and move from point D to point C, the Ivanovs are willing to give up 2 units of product B (13 instead of 15). MRS in this case is equal to:

MRS = A/B = 1/-2 = -0.5

The values of the marginal rate of substitution are always negative, since an increase in the number of acquired units of one good implies a decrease in the consumption of another, i.e. there are different signs. Since the indifference curve is convex downward toward the origin, the marginal rate of substitution most often decreases as consumption of one good instead of another increases. This phenomenon is called the decreasing marginal rate of substitution.

On another Fig. Figure 3.3 shows that, moving from consumer goods bundle A to consumer goods bundle B, the consumer is willing to give up six units of clothing to obtain one unit of food. Moving from set B to set C, he is willing to give up only four units of clothing to get an additional unit of food, and when moving from C to D, he will give up only two units of clothing for one unit of food. The more clothing and less food a person consumes, the more he is willing to give up clothing for food.

Rice. 3.3. Declining marginal rates of substitution along the indifference curve

The budget constraint shows all combinations of goods that can be purchased by a consumer at a given income and given prices. The budget constraint states that total expenditure must equal income. An increase or decrease in income causes a shift in the budget line.

The budget line (line of the budget constraint) is a straight line, the points of which show sets of goods, upon the purchase of which the allocated income is spent in full. The budget line intersects the coordinate axes at points showing the maximum possible quantities of goods that can be purchased with a given income at certain prices. For each budget line, you can construct an indifference curve that will have a tangent point with the budget line.

In Fig. 3.4 the budget line initially occupies the position KL. The intersection points of the budget line with the coordinate axes are obtained as follows. Suppose that the consumer spends all of his income I only on the purchase of good X, then he will be able to buy I / Рх units of this good. Based on this assumption, the length of the segment OL is equal to I / PY.

All sets of goods corresponding to points on the budget line cost exactly I rubles. and therefore available to the consumer. All sets of goods located above and to the right of the budget line cost more than I ruble. and thus are not available to the consumer. Consequently, the budget line limits from above the set of goods available to the consumer.

How does the budget line change when income and prices of goods change? Suppose that the consumer's income is reduced to I"< I, цены на блага неизменны. Наклон бюджетной линии не изменится, так как он зависит лишь от пропорций цен. В этом случае произойдет параллельный сдвиг бюджетной линии вниз. Она займет положение K"L". При росте дохода и неизменных ценах наблюдается параллельный сдвиг бюджетной линии вверх. Допустим теперь, что доход и цена товара X неизменны, цена же блага Y уменьшилась до P"Y < PY. В this option point L will not change its position, because it is determined by the unchanged I and Px Left

Consumer equilibrium is the point at which the consumer maximizes his total utility or satisfaction from spending a fixed income.

Consumer equilibrium is the structure of consumer expenditures (at a given level of budget income), at which the greatest total utility is achieved from the entire set of consumer goods purchased by him. By changing this structure in favor of increasing spending on some goods at the expense of others, the consumer is not able to increase overall utility.

If the indifference curve shows what the consumer would like to buy, and the budget line shows what the consumer can buy, then in their unity they can answer the question of how to ensure maximum satisfaction from a purchase on a limited budget. Indifference curves and the budget line are used to graphically interpret the situation in which a consumer maximizes the utility he receives from purchasing two different goods given his budget.

The optimal set of consumer goods must meet two requirements:

· a) be on the budget line;

· b) provide the consumer with the most preferred combination.

The consumer can freely select any point on the NM line. Points located to the right and above M are inaccessible, because they correspond to an income greater than that available to the consumer. Points located to the left and below NM do not meet the condition that all income must be spent.

Thus, consumer equilibrium is achieved at the point at which the budget line touches the highest indifference curve. At this point, the consumer's rate of substitution is exactly equal to the slope of the budget line.

The consumer equilibrium condition can be expressed as follows:

Pf / Pc= rate of substitution = MUf / MUc

Task No. 1

As a result of the price reduction from 300 to 200 rubles. Demand for the product increased from 10 to 12 pcs. What is the price elasticity of demand? Will the company reduce its price in this situation?

P1=300 (rub.), P2=200(rub.), Q1=10(pcs.), Q2=12(pcs.), Er=?

To solve this problem we use the formula arc price elasticity of demand:

Ep = Q2- Q1/ Q2+ Q1: P2-P1/P2+P1, where:

Q1 and P1 - demand volume and price at time 1;

Q2 and P2 - demand volume and price at time 2;

Then we get: Ep=12-10/12+10 : 200-300/200+300= 1/11 : -1/5= -5/11.

Since the elasticity coefficient demand by price always negative , then, therefore, we are not interested in the sign of the coefficient, but in its value.

In our case Er<1, следовательно, спрос неэластичен. Значит, что при значительном изменение в цене, изменение в количестве будет совсем незначительным. А общая выручка зависит от цены. Поэтому если фирма снизит цену, то выручка, соответственно, уменьшится, а спрос на товар почти не изменится и останется почти таким same, same as at the previous price. This means that this is not profitable for the company at all; a price reduction, in this case, is a loss for the company. Therefore, in such a situation, the company will not reduce prices.

Solution:

We know that Q=20, AVC(20)=9, therefore, we can find VC, since AVC is found by the formula: AVC=AV/Q, then AV=9*20=180. This is the value of all variable costs of producing 20 balls.

Problem No. 2

If the average fixed cost is $12.50 at a production level of 10 balls, what is the average variable cost at a production level of 25 balls?

Solution:

Q=10, AFC(10)=12.5, therefore, we can find FC(10), FC(10)=125.

The FC value is constant for all production volumes, therefore, FC(25)=125, as with Q=10. Then you can find AFC from Q=25, AFC=125/25=5,

Then we will find AVC using the formula AVC=ATC-AFC (since ATC=AFC+AVC), since ATC=30 (according to the schedule), then AVC=30-5=25. This is the average variable cost for a production volume of 25 balls.

Task No. 3

Does the law of diminishing marginal productivity apply to the production functions shown in the figure?

Answer:

The law of diminishing marginal productivity for the production functions depicted in this figure applies, because these costs are in the short term, this means that with the sequential addition of units of a variable resource (labor) to constant resources (land, capital), it gives a decreasing additional or marginal product in calculation for each subsequent unit of variable resource. It turns out that it does not apply only to variable costs.

Problem No. 4

Draw a rectangle on the graph for any level of output, the area of which corresponds to the value of fixed costs.

Solution:

Let's take the number Q=25 as the level of output, then FC(25)=125, the number 125 will be the area of the rectangle that we must build, since we took the number equal to 25 for the first side, then from here we find the second side (price per piece), which is equal to 5, since Spr.=Q*P, then P=125/25=5. The resulting numbers will be the sides of a rectangle whose area is equal to the value of fixed costs.

Bibliography

utility gossen indifference consumer

1. R. Nuriev, N. Rozanova. Consumer behavior in a market economy. Economic Issues No. 1, 1994.

2. Vidyapin V.I., Zhuravleva G.P. General economic theory. - M., 1997.

3. Economic theory: Textbook. for universities / Ed. A.I. Dobrynina, L.S. Tarasevich. -3rd ed., add. and corr. - St. Petersburg: Peter, 2002.-544 p.

4. Zorin I.V., Kvartalnov V.A. Terminological Dictionary. 1999.

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