Bahan Kuliah Ek. Mikro Choices Made by Household and Firm 0
Ekonom ika M ikr o
( PEK 411)
1
CH O I CE S M A D E B Y
H O U SE H O L D S A N D F I R M S
Losina Purnastuti, M .Ec.Dev. Ph.D
PEN D I D I K AN EK ON OM I
FE - UN Y
2 0 12
Fir m and H ousehold D ecisions
H ousehold Behavior and Consum er Choice
H ousehold Choice in
Output M ar kets
The Basis of Choice:
U tility
I ncom e and
Substitution Effects
The I ndiffer ence
Cur ve Appr oach
The D eter m inants of H ousehold D em and
The price of the product
The incom e available to the household
The household's amount of accumulated wealth
The prices of other products available to the
household
The household's tastes and preferences
The household's expectations about future income,
wealth, and prices
The Budget Constr aint
A consumer’s budget constraint identifies which
combinations of goods and service the consumer can
afford with a limited budget, at given prices.
Budget constraint: The different combinations of
good a consumer can afford with a limited budget, at
given price.
The Budget Constr aint… cont
The Equation of the Budget Constr aint
Changes in The Budget Line
Change in I ncome
Change in Price
Changes in The Budget Line... cont
Consumer Decision: The Marginal Utility Approach
Consumer Decision: The Marginal Utility Approach... cont
M ar ginal U tility ( M U ) : The a dditiona l
satisfaction gained by the consum ption or use of
one m or e unit of a good or ser vice.
Total U tility ( TU ) : The total am ount of
satisfaction obtained fr om consum ption of a
good or ser vice.
Law of D im inishing M ar ginal U tility: The m or e
of any one good consum ed in a given per iod, the
less satisfaction ( utility) gener ated by
consum ing each additional ( m ar ginal) unit of the
sam e good.
Allocating I ncom e to M axim ize U tility
Allocating I ncom e to M axim ize U tility... cont
Deriving the Demand Curve
I NCOME AND SUBSTI TUTI ON EFFECTS
“Great news! Now that Pepsi
is cheaper, my income has
greater purchasing power. I
am, in effect, richer than I
was. Because I am richer, I
can buy both more Pepsi and
more pizza.” (This is the
income effect.)
“Now that the price of Pepsi
has fallen, I get more pints of
Pepsi for every pizza that I
give up. Because pizza is now
relatively more expensive, I
should buy less pizza and
more Pepsi.” (This is the
substitution effect.)
I NCOME AND SUBSTI TUTI ON EFFECTS... cont
The I ndifference Curve Approach
NEXT MEETI NG
ASSU M PTI ON S
We assume that this analysis is restricted to goods that yield
positive marginal utility, or, more simply, that "more is better.”
The m ar ginal r ate of substitution is defined as MUX/ MUY,
or the ratio at which a household is willing to substitute X for Y.
We assume that consumers have the ability to choose among the
combinations of goods and services available.
We assume that consumer choices are consistent with a simple
assumption of rationality. I f a consumer shows that he prefers A to
B a nd subsequently show s tha t he prefers B to a thir d
a lter na tive, C, he should pr efer A to C when confronted with
a choice between the two.
D ERI VI N G I N D I F F E R E N C E CU RVES
The Marginal Rate of Substitution
Consumer Decision Making
What Happen When Things Change?
Deriving the Demand Curve
I NCOME AND SUBSTI TUTI ON EFFECTS
“Great news! Now that Pepsi
“Now that the price of Pepsi
is cheaper, my income has
greater purchasing power. I
am, in effect, richer than I
was. Because I am richer, I
can buy both more Pepsi and
more pizza.” (This is the
income effect.)
income effect: the change in
consumption that r esults
when a pr ice change moves
the consumer to a higher or
lower indiffer ence cur ve
has fallen, I get more pints of
Pepsi for every pizza that I
give up. Because pizza is now
relatively more expensive, I
should buy less pizza and
more Pepsi.” (This is the
substitution effect.)
substitution effect: the change
in consumption that r esults
when a pr ice change moves
the consumer along a given
indiffer ence cur ve to a point
with a new mar ginal r ate of
substitution
I ncom e and Substitution Effects W hen the Pr ice of Pepsi Falls
I NCOME AND SUBSTI TUTI ON EFFECTS... cont
A Giffen Good
A GIFFEN GOOD.
In this example, when
the price of potatoes
rises, the consumer’s
optimum shifts from
point C to point E. In
this case, the
consumer responds
to a higher price of
potatoes by buying
less meat and more
potatoes.
( PEK 411)
1
CH O I CE S M A D E B Y
H O U SE H O L D S A N D F I R M S
Losina Purnastuti, M .Ec.Dev. Ph.D
PEN D I D I K AN EK ON OM I
FE - UN Y
2 0 12
Fir m and H ousehold D ecisions
H ousehold Behavior and Consum er Choice
H ousehold Choice in
Output M ar kets
The Basis of Choice:
U tility
I ncom e and
Substitution Effects
The I ndiffer ence
Cur ve Appr oach
The D eter m inants of H ousehold D em and
The price of the product
The incom e available to the household
The household's amount of accumulated wealth
The prices of other products available to the
household
The household's tastes and preferences
The household's expectations about future income,
wealth, and prices
The Budget Constr aint
A consumer’s budget constraint identifies which
combinations of goods and service the consumer can
afford with a limited budget, at given prices.
Budget constraint: The different combinations of
good a consumer can afford with a limited budget, at
given price.
The Budget Constr aint… cont
The Equation of the Budget Constr aint
Changes in The Budget Line
Change in I ncome
Change in Price
Changes in The Budget Line... cont
Consumer Decision: The Marginal Utility Approach
Consumer Decision: The Marginal Utility Approach... cont
M ar ginal U tility ( M U ) : The a dditiona l
satisfaction gained by the consum ption or use of
one m or e unit of a good or ser vice.
Total U tility ( TU ) : The total am ount of
satisfaction obtained fr om consum ption of a
good or ser vice.
Law of D im inishing M ar ginal U tility: The m or e
of any one good consum ed in a given per iod, the
less satisfaction ( utility) gener ated by
consum ing each additional ( m ar ginal) unit of the
sam e good.
Allocating I ncom e to M axim ize U tility
Allocating I ncom e to M axim ize U tility... cont
Deriving the Demand Curve
I NCOME AND SUBSTI TUTI ON EFFECTS
“Great news! Now that Pepsi
is cheaper, my income has
greater purchasing power. I
am, in effect, richer than I
was. Because I am richer, I
can buy both more Pepsi and
more pizza.” (This is the
income effect.)
“Now that the price of Pepsi
has fallen, I get more pints of
Pepsi for every pizza that I
give up. Because pizza is now
relatively more expensive, I
should buy less pizza and
more Pepsi.” (This is the
substitution effect.)
I NCOME AND SUBSTI TUTI ON EFFECTS... cont
The I ndifference Curve Approach
NEXT MEETI NG
ASSU M PTI ON S
We assume that this analysis is restricted to goods that yield
positive marginal utility, or, more simply, that "more is better.”
The m ar ginal r ate of substitution is defined as MUX/ MUY,
or the ratio at which a household is willing to substitute X for Y.
We assume that consumers have the ability to choose among the
combinations of goods and services available.
We assume that consumer choices are consistent with a simple
assumption of rationality. I f a consumer shows that he prefers A to
B a nd subsequently show s tha t he prefers B to a thir d
a lter na tive, C, he should pr efer A to C when confronted with
a choice between the two.
D ERI VI N G I N D I F F E R E N C E CU RVES
The Marginal Rate of Substitution
Consumer Decision Making
What Happen When Things Change?
Deriving the Demand Curve
I NCOME AND SUBSTI TUTI ON EFFECTS
“Great news! Now that Pepsi
“Now that the price of Pepsi
is cheaper, my income has
greater purchasing power. I
am, in effect, richer than I
was. Because I am richer, I
can buy both more Pepsi and
more pizza.” (This is the
income effect.)
income effect: the change in
consumption that r esults
when a pr ice change moves
the consumer to a higher or
lower indiffer ence cur ve
has fallen, I get more pints of
Pepsi for every pizza that I
give up. Because pizza is now
relatively more expensive, I
should buy less pizza and
more Pepsi.” (This is the
substitution effect.)
substitution effect: the change
in consumption that r esults
when a pr ice change moves
the consumer along a given
indiffer ence cur ve to a point
with a new mar ginal r ate of
substitution
I ncom e and Substitution Effects W hen the Pr ice of Pepsi Falls
I NCOME AND SUBSTI TUTI ON EFFECTS... cont
A Giffen Good
A GIFFEN GOOD.
In this example, when
the price of potatoes
rises, the consumer’s
optimum shifts from
point C to point E. In
this case, the
consumer responds
to a higher price of
potatoes by buying
less meat and more
potatoes.