A2 Economics Essays

A2 Economics Essays-64
The first assumption is that consumer preferences are , meaning that they can rank all market baskets in the order of their choice.So, considering Coca Cola and Pepsi, a consumer could either say that they prefer Coca Cola to Pepsi, Pepsi to Coca Cola, or are indifferent between the two.

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So, in the case of a holiday, the consumer will prefer two holidays to one.

This assumption will later lead into a discussion on utility maximisation.

Banana’s From analysing these curves, we can note several assumptions.

The first is that the indifference curve must slope downward if the consumer views these goods as .

The law of ‘Diminishing Returns’ must also be considered here given that it could be expected that as a consumer demands more of a particular good; the utility received from that good decreases. However, what needs to be added here is the idea of the , and how this impacts on utility.

With this in mind, there is some link between the utility of the good and the price elasticity of the good.

For instance, one use of consumer theory is to showcase why the demand curve for many goods slopes downward.

However, moving on from these basic principles, consumer choice, and so consumer behaviour have far greater implications.

For instance, if a consumer has 10 chocolate bars, they may be more willing to trade a chocolate bar for an apple than say compared to their willingness to trade if they only had 2 chocolate bars.

We consider the MRS along the indifference curve, with the key word here being diminishing given the expectation that as the quantity of a good decreases, they are less willing to trade.


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