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ECON 102.004 Principles of Microeconomics

2. Lecture Outline. Consumer ChoiceIncome elasticity of demandDeriving demand curvesIncome and substitution effectsUtilityBeyond the basic competitive model. 3. Assumption of Rationality. There are over 100 million households in the United States choosing millions of different types and brands

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ECON 102.004 Principles of Microeconomics

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    1. 1 ECON 102.004 – Principles of Microeconomics S&W, Chapter 5 The Consumption Decision Instructor: Mehmet S. Tosun, Ph.D. Department of Economics University of Nevada, Reno

    2. 2 Lecture Outline Consumer Choice Income elasticity of demand Deriving demand curves Income and substitution effects Utility Beyond the basic competitive model

    3. 3 Assumption of Rationality There are over 100 million households in the United States choosing millions of different types and brands of goods daily. Economists assume all of them are rational! This is not so farfetched. Rationality simply means not wasting resources.

    4. 4 The Budget Constraint A consumer has only so much income to spend. A budget constraint gives all of the combinations of two goods the consumer can buy if she spends all of her income. The budget constraint shows the opportunity set for the consumer given the prices and the consumer's income.

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