Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 1 of 26
…
Chapter 21 The Theory of Consumer Choice - Topics
The Budget Constraint: What the Consumer Can Afford
Preferences: What the Consumer Wants
Representing Preferences With Indifference Curves
Four Properties of Indifference Curves
Two Extreme Examples of Indifference Curves
Optimization: What the Consumer Chooses
Utility: An Alternative Way To Describe Preferences and Optimization
How Changes In Income Affect The Consumer's Choices
How Changes In Prices Affect The Consumer's Choices
Income and Substitution Effects
Deriving the Demand Curve
Do All Demand Curves Slope Downward?
The Search for Giffen Goods
How Do Wages Affect Labor Supply?
Income Effects On Labor Supply
How Interest Rates Affect Household Saving
… …
ChatGPT:
Summary of Chapter 21: The Theory of Consumer Choice, Mankiw, Principles of Economics, 5th Ed.
Chapter 21 explains how consumers make choices given limited income and many possible goods.
The core idea is consumers try to maximize their satisfaction (utility) subject to their budget constraint.
A budget constraint shows the combinations of goods a consumer can afford.
Consumers also face preferences, represented by indifference curves, which show combinations of goods that give the consumer the same level of satisfaction.
Indifference curves have three key properties:
(1) they slope downward
(2) higher curves represent higher satisfaction
(3) they are bowed inward due to diminishing marginal rate of substitution
A consumer’s optimal choice occurs at the point where the budget constraint is tangent to the highest possible indifference curve.
At this point, the consumer’s personal rate of substitution equals the market’s relative price.
The chapter also discusses
-how income changes shift the budget constraint and create income effects - changes in consumption caused by increased purchasing power
-price changes create substitution effects - consumers buy more of the good that becomes relatively cheaper
These concepts help explain why demand curves generally slope downward.
Finally, Mankiw discusses labor supply and saving decisions using the same tools: individuals choose between leisure and consumption or today’s consumption versus future consumption to maximize utility.
… …
the theory of consumer choice
shōhisha sentaku riron
消費者選択理論

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