Purchasing:     In section 6. Budget Constraints, we learned how to graph the set of affordable bundles available to a consumer. Now we want to examine the actual purchases made and how they change when either prices or income changes. In this section, we examine how purchase decisions vary with income. In the Income and Substitution Effects section we examine the effect of changing prices on purchases.

    We start with the idea that consumers strive to attain the most satisfaction or pleasure possible when they make their consumption decisions. In the vernacular of the micro-economist, consumers make purchase decisions so as to maximize utility.

    In this section our consumers will continue to consume only two goods. This enables us to use two-dimensional graphs, which are much easier to read, yet still investigate consumer behavior in more depth than possible with demand and supply analysis.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved