Microeconomic Paper

In: Business and Management

Submitted By storm125
Words 840
Pages 4
Microeconomic Paper In order for economists to model consumer behavior they have to consider a few assumptions. The first assumption is about rational behavior. They assume the consumer is a rational person, who tries to use his or her money income to acquire the greatest amount of satisfaction or utility from a good or service. The second assumption economists look at are consumers’ preferences. Every consumer has their own preferences for certain goods and services that are available in the market. Buyers also have a good idea of how much marginal utility they will get from successive units of the various products they might purchase. The third assumption that we should look at is known as the budget constraint. At any point in time the consumer has a fixed, limited income. The budget constraint varies depending on the individual consumers’ income. In other words everyone is limited on the amount of goods and services they can achieve based on their income. The last assumption economists look at is price. They assume that the price of each good is unaffected by the amount of it that is bought by any particular person. Since the consumer has a limited income he or she cannot buy everything they want so the consumer must compromise. He or she must choose the most satisfying mix of goods or services and this varies depending on who you are. After economists look at the assumptions to model consumer behavior they then look at the law of diminishing marginal utility.
When looking at the law of diminishing marginal utility you first need to know what a utility is. Utility is the pleasure or satisfaction a person gets when they consume a good or service. The law of marginal utility basically says, as you consume more of a good or service your utility level for that good or service will start to decrease. For example: if you are hungry and you bought a pizza. Your…...

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